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BANK 
OFFICERS 


RIGHTS 

POWERS        DUTIES 

LIABILITIES 


PRICE  SEVENTY-FIVE  CENTS 


Digitized  by  the  Internet  Archive 

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BANK  OFFICERS 


A  HANDBOOK  OF  PRACTICAL  INFORMATION 

ON  BANK  CASHIERS,  PRESIDENTS, 

DIRECTORS,  ETC.,  EXTRACTED 

FROM  DECISIONS  OF  THE 

COURTS   ESPECIALLY 

THOSE  OF  RECENT 

YEARS  DOWN 

TO  DATE 


BY  ^\^\ 


J.  L.  ROSENBERGER      ^U 

Editor  of  "BUSINESS  AID,"  Etc.  ]  ^  ^ 


9 


y^ 


li^ 


CHICAGO 

PUBLISHED  BY  THE  AUTHOR 

1914 


CONTENTS 

I.  BANK  CASHIERS 3-45 

11.  BANK  PRESIDENTS 46—58 

III.  BANK  DIRECTORS 59-70 

IV.  MISCELLANEOUS 71-80 


Copyright,  1914 
By  J.  L.  Rosenberser 


BANK  OFFICERS 

I.     BANK   CASHIERS 

The  powers  and  duties,  rights  and  liabilities  of  bank  cash- 
iers, as  laid  down  and  reflected  in  various  decisions  of  the 
courts,  will  be  considered  first. 

Then  will  be  shown  the  course  of  recent  rulings  with  re- 
gard to  bank  presidents,  directors,  and  bank  officers  in  general. 

There  are  two  reasons  for  following  this  order,  (a)  It  is 
the  one  of  practical  interest  and  importance,  (b)  It  is  sug- 
gested by  the  nature  and  amount  of  material  for  each  subdi- 
vision. 

The  matter  contained  in  this  book  is  virtually  what  ap- 
peared in  the  magazine  Business  Aid  during  the  last  three  and 
a  half  years  or  so  down  to  January,  1914.  It  has  been  rearranged 
according  to  topics,  and  to  a  degree  rewritten,  but  not  changed 
with  regard  to  legal  references,  which  are  given  or  omitted  just 
as  was  done  in  the  magazine,  which  for  approximately  the  first 
half  of  the  period  covered  did  not  give  them,  believing  that  for 
the  purpose  sought  to  be  subserved  they  were  as  well,  if  not 
better,  omitted. 

The  extent  to  which  such  information  as  is  herein  con- 
tained may  be  immediately  and  directly  applied  does  not  by  any 
means  indicate  its  full  value.  Besides  furnishing  many  direct 
precedents  for  guidance,  it  supplies  even  more  principles  which 
should  aid  in  the  solution  of  the  business  problems  which  from 
time  to  time  will  arise  for  which  no  exact  precedent  can  be  found. 

It  is  not  enough  that  banks  employ  attorneys,  even  the  best 
to  be  had.  Beyond  that,  it  is  almost  indispensable  that  bank 
officers,  and  cashiers  in  particular,  should  be  for  themselves  as 
reliably  informed  as  possible  as. to  where  they  stand  legally,  and 
what  they  should  or  should  not  do  in  a  multitude  of  cases. 

In  a  hundred,  or  many  hundred,  transactions  a  cashier  may 
have  no  question  raised  as  to  his  legal  powers,  when,  all  at  once, 
he,  or  his  bank,  may  be  called  on,  before  a  court,  to  justify  his 
action.  It  may  not  be  that  the  point  with  reference  to  which 
this  occurs  is  more  doubtful  or  difficult  than  all  the  others  which 
have  been  passed  over,  but  that  the  party  making  the  trouble  is 
looking  for  any  excuse  that  he  can  find,  or  conjure  up,  to  defeat 
the  claims,  or  rights,  of  the  bank. 

Moreover,  many  important  steps  have  to  be  taken  under 
circumstances  where  deliberation  or  consultation  with  regard  to 


310433 


BANK    CASHIERS 


them  cannot  well  be  had,  or  when  one  might  not  at  the  time 
think  either  necessary.  Then  the  man  who  has  prepared  before- 
hand for  just  such  emergencies,  and  knows  legal  principles,  has 
the  advantage. 

It  is  also  desirable  that  business  men  generally  should  know 
something  of  the  law  governing  bank  cashiers,  as  they  are  the 
officers  with  whom  customers  must  transact  the  most  of  their 
business  not  purely  routine,  and  because,  as  the  Supreme  Court 
of  Michigan  said,  as  long  ago  as  1844,  persons  dealing  with  a 
bank  are  supposed  to  know  the  extent  of  the  powers  of  a  bank 
cashier. 


THE    CASHIER  S    POSITION 

There  is  a  marked  distinction,  the  Supreme  Court  of  Ten- 
nessee says,  between  the  cashier  of  a  bank  and  the  cashier  of 
any  other  corporation. 

By  law  and  by  the  usage  of  years,  the  cashier  of  a  bank  is 
regarded  as  an  executive  officer  by  whom  the  whole  moneyed 
operations  of  the  institution  are  to  be  conducted. 

Various  other  courts  have  referred  to  the  cashier  of  a  bank 
as  its  executive,  or  chief  executive,  officer,  or,  in  a  sense,  general 
manager. 

Thus,  the  Supreme  Court  of  Alabama  says,  in  Montgomery 
Bank  &  Trust  Co.  vs.  Walker,  61  Southern  Reporter,  951,  that 
the  cashier  is  the  chief  executive  officer  of  a  bank,  through  whom 
the  financial  operations  of  the  bank  are  conducted. 

Likewise,  the  Supreme  Court  of  Kansas  declares,  in  an  1884 
decision,  that  the  cashier  is  the  executive  of  the  financial  depart- 
ment of  the  bank  and  whatever  is  to  be  done,  either  to  receive 
or  pass  away  the  funds  of  the  bank  for  banking  purposes,  is 
done  by  him  or  under  his  direction;  he,  therefore,  directs  and 
represents  the  bank  in  the  reception  and  emission  of  money  for 
banking  objects. 

The  cashier,  however,  cannot  impose,  by  his  action,  on  the 
bank,  any  liability  not  already  imposed  by  law  or  usage — cannot 
bind  the  bank,  in  the  absence  of  authority  from  the  directors,  by 
any  agreements  or  contracts  outside  of  the  range  of  his  duties. 

Again,  the  Supreme  Court  of  California  holds,  in  McBoyle 
vs.  Union  National  Bank,  122  Pacific  Reporter,  458,  that,  gener- 
ally speaking,  a  bank  cashier  has  greater  inherent  powers  than 
any  other  corporate  officer. 

He  has  full  charge  of  the  bank's  personal  property,  except 
so  far  as  withdrawn  from  his  control  by  the  bank  or  byjthe 
directors.  \  '"^^ 

But  acts  which  are  beyond  the  scope  of  the  ordinary  business 


BANK    CASHIERS  5 

of  the  bank,  that  is  to  say,  which  call  for  the  exercise  of  judg- 
ment or  discretion  affecting  the  policy  to  be  pursued,  are  to  be 
performed  by  or  under  the  mandate  of  the  directors,  and  the 
sale  of  property  held  by  the  bank  for  investment  or  similar  pur- 
poses is  not  a  part  of  the  ordinary  business  of  a  bank. 

APPARENT    AUTHORITY 

If  a  banking  company  appoints  a  person  cashier,  he  has 
apparent  legal  authority,  the  St.  Louis  (Mo.)  Court  of  Appeals 
holds,  to  do  whatever  bank  cashiers  are  accustomed  to  do;  and 
those  dealing  with  him  may  take  it  for  granted  that  he  has  such 
authority,  even  though,  in  fact,  it  has  been  expressly  withheld 
from  him,  unless  they  have  reasonable  grounds  to  believe  it  has 
been  withheld.  More  than  that,  numerous  authorities  favor  the 
proposition,  which  is  palpably  sound,  that  where  a  corporate 
officer  has  been  allowed  by  the  directors  of  the  company  to  pur- 
sue a  particular  line  of  acts,  beyond  those  belonging  to  him  by 
virtue  of  his  office,  or  to  wield  certain  powers  not  commonly 
exercised  by  officials  of  the  same  class,  this  is  evidence  that  such 
unusual  powers  were  allowed  by  the  directors. 

COMPARED  TO  AN  AGENT 

But  the  relation  of  a  cashier  to  his  bank,  according  to  a  de- 
cision handed  down  by  the  Appellate  Court  of  Illinois,  on  June 
28,  1910,  is  merely  that  of  an  employe  or  agent.  He  does  not 
represent  the  bank  in  any  sense  other  than  that  in  which  any 
agent  represents  his  principal. 

Likewise,  the  Springfield  (Mo.)  Court  of  Appeals  holds 
that  the  cashier  of  a  bank  is  but  the  agent  of  the  bank  and  can 
bind  it  only  within  the  scope  of  his  actual  or  apparent  authority. 

The  Supreme  Court  of  Iowa  says,  in  a  decision  rendered 
in  October,  1909,  that,  as  a  matter  of  common  knowledge,  the 
cashier  is  ordinarily  the  active  financial  manager  and  agent  of 
the  bank.  He  is  the  one  officer  who  as  a  rule  is  always  present 
during  business  hours,  exercising  actual  and  immediate  super- 
vision of  its  affairs.  He  is  the  officer  with  whom  the  customers 
of  the  bank  most  frequently  come  into  contact. 

According  to  a  decision  rendered  in  1888,  in  the  absence 
of  a  more  general  authority,  the  cashier  is  restricted  in  his 
power  to  bind  his  bank  to  the  doing  of  such  acts  as  are  usually 
performed  by  persons  who  occupy  the  position  he  does.  In  other 
words,  in  the  absence  of  proof  of  special  authority,  he  must  be 
held  to  have  power  to  bind  the  bank  only  by  acts  done  in  the 
usual  and  ordinary  course  of  business. 

And,  in  1906,  the  court  holds  that  if  the  cashier  of  a  bank 


BANK    CASHIERS 


^ 


is  permitted  to  exercise  general  authority  with  respect  to  its 
business  for  a  considerable  time — in  other  words,  is  held  out  to 
the  public  as  having  authority  in  the  premises — the  bank  is 
bound  by  his  acts,  as  in  the  case  of  the  agent  of  any  other  cor- 
poration, in  the  same  manner  as  if  the  authority  were  expressly 
conferred,  though,  of  course,  this  is  on  condition  that  what  is 
done  is  not  ultra  vires,  or  beyond  the  corporate  powers  of  the 
bank. 

On  the  other  hand,  the  Supreme  Court  of  Florida  cites  a 
United  States  Circuit  Court  as  saying  that  it  is  clearly  shown 
that  the  powers  of  the  executive  officers  of  banks  cannot  from 
the  nature  of  the  business  in  which  banks  are  engaged  be  always 
limited  by  the  rules  which  govern  ordinary  agencies. 

Moreover,  an  examination  of  the  decided  cases,  the  Supreme 
Court  of  Florida  says,  shows  that  it  is  impossible  to  formulate  a 
definition  of  the  duties  of  a  cashier  that  will  be  applicable  to  all 
cases. 

DERIVATION    OF  POWERS 

A  bank  cashier  is  said  to  have  a  number  of  inherent  powers. 

Besides  his  inherent  powers,  he  may  be  authorized  to  act 
for  the  bank,  as  a  text-writer  has  said,  by  the  organic  law,  by 
action  of  the  stockholders,  by  a  vote  of  the  board  of  directors 
or  their  verbal  order,  by  usage  and  tacit  approval,  and  by  neces- 
sity or  emergency  calling  for  action  manifestly  to  the  interest  of 
the  bank. 

The  Supreme  Court  of  the  United  States  has  held  that 
evidence  of  powers  habitually  exercised  by  a  cashier  of  a  bank, 
with  its  knowledge  and  acquiescence,  defines  and  establishes  as 
to  the  public  those  powers,  provided  that  they  be  such  as  the 
directors  of  the  bank  may,  without  violation  of  its  charter,  con- 
fer on  such  cashier. 

BEING  ALLOWED  COMPLETE  CONTROL 

Coming  back  to  the  case  before  it,  the  Florida  court  holds 
that  a  bank  dealing  with  the  cashier  of  another  bank,  who  is 
permitted  by  the  directors  to  have  complete  control  of  its  busi- 
ness relations  with  other  banks,  has  a  right  to  trust  in  the  in- 
tegrity of  the  cashier  of  such  bank,  and  transact  business  with 
him  accordingly,  where  there  is  nothing  in  the  known  state  of 
affairs  of  the  latter  bank,  or  of  the  cashier's  relation  to  it,  to 
excite  suspicion  that  he  is  using  his  position  to  the  prejudice 
of  his  bank. 

It  was  evident  from  the  testimony  in  this  case  that  the 
directors  of  the  bank  held  liable  gave  to  its  cashier  a  very  wide 


BANK   CASHIERS  7 

latitude  in  managing  the  affairs  of  the  bank.  He  seemed  to  have 
had  complete  control  of  its  business  relations  with  other  banks, 
and  of  its  mail.  No  one  else  seemed  to  take  any  interest  in  these 
matters.  The  bookkeeping  also  seemed  to  have  been  entirely 
under  his  control.  If  he  used  the  latitude  thus  given  him  to  the 
prejudice  of  the  bank,  it  would  be  most  unjust,  it  seems  to  the 
court,  to  make  a  correspondent  bank  pay  for  the  negligence  of 
the  directors  of  his  bank. 

The  Supreme  Court  of  Michigan  makes  an  emphatic  dis- 
tinction, with  regard  to  some  of  the  powers  of  a  bank  cashier, 
between  cases  where  the  directors  hold  few  meetings  and  leave 
practically  the  entire  management  of  the  bank  to  the  cashier, 
and  where  the  officers  of  the  bank  are  diligent. 

WHEN    PERSONALLY    INTERESTED    IN    TRANSACTIONS 

Many  of  the  controversies  as  to  what  bank  cashiers  may  or 
should  do  are  produced  by  transactions  by  them  as  individuals 
with  their  banks,  or  by  bank  transactions  in  which  they  have 
personal  interests.  It  is  to  be  expected  that  they  will  more  or 
less  frequently  have  legitimate  outside  affairs  giving  rise  to  trans- 
actions which,  for  convenience  or  other  reason,  they  will  want 
to  conduct  with,  or  at,  their  banks. 

What  may  they  do,  and  how  far  may  they  go,  in  this  regard, 
and  it  be  binding  all  around,  are  the  general  questions  raised. 
Sometimes  the  parties  with  whom  the  dealings  are  had,  some- 
times the  banks,  and  sometimes  creditors  of  the  banks  raise  the 
questions,  depending  on  who  think  that  they  are  aggrieved,  or 
wish  to  set  aside  the  transactions  attacked. 

AS  TO  TRANSACTING  OWN   BUSINESS  AT  BANK 

To  begin  with,  the  Supreme  Court  of  Missouri  says  that  an 
officer  of  a  banking  corporation  has  a  perfect  right  to  transact 
his  own  business  at  the  bank  of  which  he  is  an  officer. 

But  it  has  been  well  understood  from  of  old,  the  Supreme 
Court  of  Kansas  says,  that  no  man  can  serve  two  masters.  He 
will  hold  either  to  the  one  or  to  the  other.  For  a  like  reason,  a 
cashier  cannot  serve  both  himself  and  the  bank  in  a  single  trans- 
action, and  where  he  attempts  such  a  perilous  thing  the  person 
dealing  with  him  is  put  upon  guard  as  to  the  extent  of  his 
power,  and  is  bound  to  inquire  whether  or  not  the  authority 
claimed  really  exists. 

When  it  comes  to  disbursements,  a  cashier  of  a  bank  has  a 
right  to  dispose  of  the  funds  of  the  bank  for  the  purposes  con- 
templated by  its  charter.  For  this  his  office  is  a  warrant  of 
authority. 


8  BANK    CASHIERS 

USE  OF  BANK  FUNDS  TO   PAY   PRIVATE  DEBTS 

However,  a  cashier  of  a  bank  cannot  absorb  the  funds  of  the 
bank  in  the  satisfaction  of  his  private  debts  without  an  express 
and  special  authorization.  The  office  of  cashier  does  not  import 
such  power. 

To  be  more  specific,  the  cashier  of  a  bank  has  no  implied 
authority  to  pay  his  individual  debt  by  entering  the  amount  of 
it  as  a  credit  upon  the  passbook  of  his  creditor,  who  keeps  an 
account  with  the  bank,  and  permitting  the  creditor  to  exhaust 
such  account  by  checks  which  are  paid,  the  bank  having  received 
nothing  of  value  in  the  transaction.  If  the  cashier  of  a  bank, 
without  actual  authority  so  to  do,  undertakes  to  pay  his  indi- 
vidual debts  in  the  manner  stated,  the  bank  may  recover  of  his 
creditor  the  amount  of  money  paid  on  checks  drawn  upon  the 
faith  of  the  unauthorized  passbook  entries. 

The  fact  that  a  cashier  is  personally  interested  in  a  trans- 
action of  the  character  described  is  sufficient  to  put  his  creditor 
upon  inquiry  as  to  the  extent  of  his  power. 

It  was  argued  in  this  case  that  when  a  bank  places  an  officer 
at  the  window  where  he  transacts  his  business  with  the  public 
it  in  effect  tells  the  world  that  he  is  trustworthy  and  reliable 
and  that  he  will  act  within  the  scope  of  his  authority.  But  the 
court  says  that  it  does  nothing  of  the  kind.  Such  a  declaration 
would  protect  a  recipient  in  the  enjoyment  of  a  Christmas  gift 
of  the  entire  body  of  corporate  assets.  By  placing  an  officer 
at  the  window  to  do  its  business  a  bank  publishes  to  the  world 
that  he  is  there  to  do  its  business  and  not  his  business ;  that  he 
has  no  power  or  authority  to  do  any  act  outside  the  legitimate 
prosecution  of  the  corporate  enterprise,  and  that  it  will  not  be 
bound  by  any  perversion  of  the  corporate  funds  to  his  personal 
use. 

SAME  AS  ANY  OTHER  DEBTOR 

As  one  indebted  to  the  bank,  a  1907  Iowa  decision  says,  a 
cashier  occupies  precisely  the  same  attitude  as  any  other  debtor. 
It  is  for  him  to  pay  his  obligation  in  cash,  and  without  the  con- 
sent and  approval  of  the  governing  body  of  the  bank  he  cannot 
otherwise  cancel,  satisfy,  or  change  the  same. 

Most  assuredly,  he  cannot  act  for  himself  as  debtor  and  for 
the  bank  as  its  managing  agent,  and  in  such  double  capacity 
agree  that  another  debtor  to  the  bank  shall  be  substituted  in 
place  of  himself.  This  is  true  in  accordance  with  the  general 
rule  that,  without  express  consent,  a  man  cannot  in  one  and  the 
same  transaction  act  for  himself  and  as  agent  of  another;  there 


BANK    CASHIERS  9 

being  a  conflict  of  interest.  In  such  a  case  the  essential  element 
of  mutuality  is  wholly  wanting. 

From  this  it  follows  that  a  cashier's  act  in  taking  out  his 
own  and  substituting  in  place  thereof  the  note  of  another  person 
that  the  cashier  owns  has  no  force  to  change  the  relationship 
between  himself  and  the  bank.  Such  a  change  can  be  legally 
eflPected  only  through  the  medium  of  the  board  of  directors,  or 
some  duly  authorized  officer. 

Of  course,  the  bank  may  ratify  when  the  act  of  the  cashier 
becomes  known,  but  as  the  transaction  is  of  no  force  until  rati- 
fied, the  cashier  is  free  in  the  meantime  to  make  other  disposition 
of  the  note.  Furthermore,  a  ratification  cannot  operate  retro- 
actively so  as  to  affect  or  cut  off  intervening  rights. 

TRANSACTING  BUSINESS   WITH   ASSISTANT 

Something  was  said  in  this  case  about  the  assistant  of  the 
cashier  having  acted  in  the  transaction  for  the  bank,  but  that 
was  not  sufficient,  when  he  did  only  what  the  cashier  commanded 
him  to  do,  and  there  was  no  showing  that  he  was  possessed  of 
any  authority. 

ACTING  WITH  DIRECTOR   NO  BETTER 

^-^^  Moreover,  limitation  of  a  cashier's  power  to  pay  his  own 
debts  with  funds  of  the  bank,  or  by  giving  a  personal  creditor 
a  credit  on  the  books  of  the  bank,  is  not  restricted  entirely  to 
cases  where  he  acts  alone  in  the  matter.  For  example,  the  Su- 
preme Court  of  Kansas  holds  that  neither  the  cashier  of  a 
national  bank,  nor  a  member  of  the  discount  board  who  owns  a 
majority  of  the  stock  of  the  bank  and  is  a  director  who  largely 
controls  its  affairs,  nor  the  two  conspiring  together,  can  by  any 
device  or  fraud  give  away  the  funds  of  the  bank,  or  use  them  tc 
pay  the  individual  debts  of  either. 

USING  BANK  AS  INDORSER 

Nor  is  the  cashier  of  a  bank  presumed  to  have  power  by 
reason  of  his  official  position,  according  to  the  Supreme  Court 
of  the  United  States,  to  bind  his  bank  as  an  accommodation  in- 
dorser  of  his  own  promissory  note.  Such  a  transaction  is  not 
within  the  scope  of  his  general  powers ;  and  one  who  accepts  an 
indorsement  of  that  character,  if  a  contest  arises,  must  prove 
actual  authority  before  he  can  recover  on  the  indorsement. 

There  are  no  presumptions  in  favor  of  such  a  delegation  of 
power. 

The  very  form  of  the  paper  itself  carries  notice  to  a  pur- 
chaser of  a  possible  want  of  power  to  make  the  indorsement, 


10  BANK    CASHIERS 

and  is  sufficient  to  put  him  on  his  guard.  If  he  fails  to  avail  him- 
self of  the  notice,  and  obtain  the  information  which  is  thus  sug- 
gested to  him,  it  is  his  own  fault,  and,  as  against  an  innocent 
party,  he  must  bear  the  loss. 

DISCOUNTING    OF    OWN    NOTES 

With  reference  to  the  rights  and  restrictions  of  cashiers  in 
transactions  in  which  they  have  personal  interests,  the  Supreme 
Court  of  Wisconsin  says  that  the  law  is  that  a  cashier  cannot 
bind  his  bank  by  discounting  his  own  note.  General  authority 
to  a  bank  officer  to  make  discounts  does  not  authorize  him  to 
bind  the  bank  by  discounting  notes  to  which  he  is  a  party.  This 
limitation  is  absolutely  necessary  for  the  protection  of  the  bank 
and  the  important  interests  which  are  intrusted  to  it  by  the 
business  community. 

POWER  TO  BORROW  FROM  BANK 

In  another  case,  the  same  court  says  that  the  cashier  is  not 
a  legal  trustee.  He  occupies  a  position  of  trust  and  confidence 
toward  his  bank,  and  is  held  to  a  high  degree  of  diligence  in 
performing  his  duties;  but  he  may  deal  with  his  bank  with  the 
consent  of  the  board  of  directors  or  other  managing  body  of  the 
corporation.  He  may  not  obtain  a  preference  for  himself  if  the 
corporation  be  insolvent,  but  there  is  no  principle  of  law  which 
prohibits  him  from  borrowing  money  of  the  corporation  in  good 
faith  while  it  is  a  going  concern,  with  the  consent  of  the  board 
of  directors. 

REAL  ESTATE  TRANSACTIONS 

Here  the  cashier,  with  the  consent  of  all  the  stockholders 
and  directors,  bought  certain  land  and  became  the  debtor  of  the 
bank  for  the  purchase  price.  The  court  does  not  perceive  how 
the  bank  itself  could  afterwards  disaffirm  the  transaction,  when 
all  who  were  interested  authorized  it  with  knowledge  of  the 
facts,  and  when  it  did  not  appear  that  the  transaction  was  even 
unwise. 

If  the  transaction  in  question  was  a  lawful  one  when  made, 
it  followed  necessarily  that  no  trust  arose  in  favor  of  the  bank 
upon  the  land. 

Neither  was  there  anything  in  this  case  rendering  the  trans- 
action void  as  to  the  existing  creditors  of  the  bank.  Nor  was  it 
fraudulent  as  to  subsequent  creditors.  To  be  such  it  must  have 
been  entered  into  with  intent  to  contract  debts  in  the  future  and 
to  defraud  the  holders  of  such  debts. 

But,   in   the  absence   of   affirmative  evidence  of   authority 


BANK     CASHIERS  11 

from  the  directors  of  a  bank  to  make  such  a  deed,  one  made 
by  the  cashier  of  the  bank  to  himself  as  an  individual,  the  Su- 
preme Court  of  North  Dakota  holds,  is  presumptively  void,  and 
of  no  effect. 

To  the  general  rule  that  the  acts  and  contracts  of  a  general 
agent,  within  the  scope  of  his  powers,  are  presumed  to  be  law- 
fully done  and  made,  there  is  an  exception  as  universal  and 
inflexible,  the  court  says,  as  the  rule.  It  is  that  an  act  done  or 
a  contract  made  with  himself  by  an  agent  on  behalf  of  his 
principal  is  presumed  to  be,  and  is,  notice  of  the  fact  that  it  is 
without  the  scope  of  his  general  power,  and  no  one  who  has 
notice  of  its  character  may  safely  rely  upon  it  without  proof  that 
the  agent  was  expressly  and  specifically  authorized  by  his  prin- 
cipal to  do  the  act  or  make  the  contract. 

In  a  late  Montana  case  brought  by  a  state  bank  on  a  $1,500 
note,  the  defendant  showed  that  at  the  time  of  signing  the  note 
he  was  a  partner  in  a  real  estate  business  with  the  then  cashier 
of  the  bank  and  was  asked  by  the  latter  to  sign  the  note  to  be 
used,  instead  of  the  cashier's  own  paper,  which,  it  was  explained, 
the  bank  did  not  want  and  which  would  not  look  well  to  the 
examiner,  but  that  he  (the  defendant)  would  not  have  to  pay 
the  note;  that  the  bank  would  not  hold  him  responsible.  The 
trial  resulted  in  a  judgment  in  favor  of  the  defendant,  but  that 
is  reversed  by  the  supreme  court  of  the  state,  which  holds  that 
the  promise  of  the  cashier  was,  on  its  face,  beyond  the  scope 
of  his  authority,  and  that  the  defendant  was  chargeable  with 
notice  thereof — holds  that  the  cashier  of  a  bank,  by  virtue  of  his 
office,  has  no  authority  to  make  such  an  arrangement  as  that 
testified  to  by  the  defendant,  and  that  whoever  accepts  such  an 
agreement  and  acts  upon  it  does  so  at  his  peril. 

UNNECESSARILY    FRIGHTENED 

There  is  little  danger  of  a  cashier  of  a  bank  knowing  too 
much  of  the  law  entering  into  the  transactions  which  he  con- 
ducts.    In  knowing  too  little  of  it,  if  anything,  is  his  danger. 

A  somewhat  peculiar  case  illustrative  of  this  was,  in  1911, 
before  the  Supreme  Court  of  Georgia.  It  was  a  suit  by  a  bank 
on  a  note.  One  of  the  defendants  had  been  a  cashier  of  another 
bank.  Another  defendant  was  his  father.  A  third  defendant 
had  been  a  director  of  such  other  bank.  Their  defense  was  that 
they  had  been  induced  to  sign  the  note  by  fraud  and  duress,  and 
that  the  plaintiff  had  received  the  note  with  notice  of  the  facts 
relied  upon  to  establish  that  defense. 

More  particularly  they  set  up  that  shortly  after  the  son  had 
resigned  his  position  as  cashier,  he  and  his  father  were  brought 


12  BANK    CASHIERS 

together  by  named  officers  and  agents  of  the  bank,  who  know- 
ingly and  falsely  stated  to  them  that  he,  the  son,  had  violated 
certain  criminal  laws  of  the  state  regarding  banking,  in  that, 
being  cashier  of  the  bank,  he,  in  connection  with  the  said  di- 
rector, had  used  money  of  the  bank  with  which  to  speculate, 
referring  to  a  certain  store  building  which  had  been  erected  by 
those  two  defendants  with  funds  largely  borrowed  from  the 
bank,  but  which  had  in  fact  been  borrowed  with  the  full  con- 
sent of  the  board  of  directors,  which  consent,  with  the  approval 
of  the  loan,  had  been  duly  entered  on  the  minutes  of  the  bank. 

Continuing  the  portrayal,  the  defendants  alleged  that  they 
were  told  that  the  bonding  company,  which  had  been  surety  on 
the  cashier's  bond,  was  liable  for  all  of  his  shortcomings,  and  it 
would  only  be  necessary  to  turn  him  over  to  the  bonding  com- 
pany, which  would  doubtless  prosecute  him  for  the  alleged  felo- 
nies he  had  committed,  and  even  if  by  any  technicality  of  the 
law  he  escaped  a  just  conviction  he  could  never  get  a  place  in  a 
bank  again,  for  his  record  would  be  tarnished  and  his  business 
career  ruined  by  exposure  of  his  many  "defections." 

Then,  believing  the  truth  of  what  they  had  been  told,  they 
were  induced,  they  said,  to  sign  certain  notes,  of  which  that  in 
suit  was  one,  upon  a  promise  that,  out  of  professed  friendship, 
there  should  then  be  no  prosecution. 

Was  that  a  good  defense  to  the  note?  No;  the  Supreme 
Court  of  Georgia  does  not  consider  that  it  was,  as  it  does  not 
consider  that  the  allegations  relied  upon  were  sufficient  to  charge 
fraud  or  duress. 

OUGHT  TO  HAVE  KNOWN  THE  LAW 

There  is  no  law  in  Georgia,  the  court  says,  which  makes  it 
penal  merely  for  an  officer  of  a  bank  to  borrow  from  his  insti- 
tution, upon  the  consent  and  approval  of  the  directors  duly 
entered  on  the  minutes,  either  for  speculation  or  any  other  pur- 
pose. The  facts  alleged  could  not  form  the  basis  of  a  criminal 
prosecution  of  any  character,  or  furnish  grounds  for  the  arrest 
of  the  officer  so  borrowing  the  money,  nor  could  they  furnish 
grounds  for  aspersions  against  his  character.  Neither  did  it 
appear  how  they  could  put  him  in  bad  odor  with  the  bonding 
company. 

The  defendants,  the  court  goes  on  to  say,  were  men  of  ex- 
perience, dealing  at  arm's  length  with  the  officers  of  the  bank, 
were  charged  with  notice  of  the  law,  bound  to  know  that  it  was 
no  violation  of  law  or  other  duty  for  them  to  borrow  money 
under  the  circumstances  enumerated,  and  could  not  ascribe  their 
act  in  executing  the  note  to  a  constrained  consent,  or  to  fraud 


BANK    CASHIERS  13 

or  duress  in  a  legal  sense.  The  allegations  relied  upon  presented 
an  example  of  pure  threat,  without  any  color  of  power  or  au- 
thority to  make  it  effective.  There  was  no  error  in  striking  out 
what  related  to  that  defense. 

PRESUMPTION    OF    REGULARITY   OF    ACTS 

The  presumption,  another  moderately  recent  decision  says, 
is  in  favor  of  the  regularity  of  the  acts  done  by  the  cashier  of 
a  bank,  but  that  presumption  may  be  overthrown  by  proof. 

RIGHT   TO  OUTSIDE   EARNINGS 

The  question  of  the  right  to  the  earnings  of  a  cashier  out- 
side of  banking  hours  is  considered  in  a  suit  brought  by  a  na- 
tional bank,  the  theory  of  which  the  Supreme  Court  of  North 
Dakota  says  presupposes  the  existence  of  the  most  extraordi- 
nary contract  that  has  ever  fallen  under  its  observation.  Indeed, 
the  court  doubts  whether  it  can  be  paralleled  in  the  history  of 
Anglo-Saxon  jurisprudence. 

The  cashier,  the  court  says,  was  alleged  to  have  sold  to  the 
bank,  not  only  his  time  for  a  year,  but  every  farthing  of  his 
earnings  during  that  period  from  whatever  source.  It  appeared 
that  he  had  been  receiving  a  salary  of  $1,500  a  year,  that  the 
board  of  directors  favored  a  reduction  to  $1,200,  when,  it  was 
claimed,  in  consideration  of  receiving  his  old  salary,  he  entered 
into  this  most  astonishing  agreement  not  only  to  devote  all  his 
time  to  the  business  of  the  bank,  but  also  to  account  to  it  for  all 
his  earnings,  in  whatsoever  way  they  might  be  acquired. 

The  bank's  suit  was  on  this  alleged  contract,  it  appearing 
that  by  transactions  in  real  estate  outside  of  banking  hours  the 
cashier  had,  during  the  year,  made  something  like  $1,456,  of 
which  $896  was  cash,  and  the  balance  in  notes,  for  none  of  which 
he  had  accounted  to  the  bank. 

UNPRECEDENTED    CONTRACT    FOR    SERVICES    CONSTRUED 

But  when  such  an  unprecedented  contract,  creating,  while 
it  continues  in  existence,  a  condition  akin  to  human  slavery,  is 
claimed  to  have  been  made,  the  court  must  exact  very  clear  proof 
thereof.  That  requirement  this  case  fell  very  far  short  of  meet- 
ing. Taking  all  the  evidence  together,  and  construing  it  fairly 
in  the  light  of  known  business  usages,  the  court  thinks  that  it 
amounted  to  no  more  than  this:  That  the  cashier  should  have 
no  right  to  complain  if  the  bank  exacted  of  him  exceptional 
labors  in  its  banking  business;  that  he  would  give  the  bank  all 
his  time  and  energies  in  the  endeavor  to  make  profit  for  the 
bank,  however  long  might  be  the  hours  of  work  required,  and 


14  .  BANK     CASHIERS 

without  reference  to  the  fact  that  the  demands  on  him  might 
be  unreasonable,  in  view  of  the  work  required  of  their  cashiers 
by  other  banks.  There  was  no  evidence  to  support  a  verdict 
in  favor  of  the  bank  in  this  suit. 

A  contract  to  give  all  of  one's  time  to  the  employer  does 
not  mean  that  outside  earnings  of  the  employe  are  to  belong  to 
the  employer.  The  servant  cannot  devote  himself  to  his  own 
business  at  the  expense  of  his  master  without  violating  his  con- 
tract.    But  his  personal  earnings  are  his  own. 

SELLING  LANDS  AS  AGENT  FOR  THIRD  PARTIES 

There  was  no  evidence  in  this  case  that  the  cashier  neg- 
lected his  duties  as  cashier,  in  the  performance  of  the  work  in 
which  his  outside  earnings  were  made.  The  work  performed  by 
him  was  such  as  a  banking  corporation  is  not  authorized  to  en- 
gage in.  It  consisted  principally  of  the  sale  of  lands  by  him  as 
agent  for  third  persons.  A  national  bank  has  no  right  to  en- 
gage in  such  business. 

Under  the  contract,  as  testified  to  by  the  president  of  the 
bank,  the  cashier  could  not  engage  in  a  banking  business,  over 
the  bank's  counter,  for  his  own  profit.  The  earnings  of  such 
work  would  belong  to  the  bank,  not  by  reason  of  any  special 
contract  for  earnings,  but  because  they  would  be  the  earnings 
of  the  bank  itself,  the  cashier  being  under  obligations,  through 
his  contract,  to  give  the  bank  all  his  time — not  to  set  himself  up 
as  a  rival  banker  while  actually  engaged  in  the  bank's  work. 

What  the  only  witness  who  spoke  of  earnings  probably 
meant  was  that  the  cashier  was  to  give  the  bank  the  benefit  of 
his  whole  time  in  and  about  the  legitimate  business  of  the  bank. 
The  court  does  not  think  that  he  intended  to  say  that  it  was 
understood  that  if  the  cashier,  in  spare  moments,  wrote  a  book, 
or  taught  a  night  school,  or  sang  in  a  church  choir,  the  fruits  of 
his  extra  toil  on  his  own  behalf  should  be  swept  into  the  tills 
of  the  bank. 

No  notice  is  taken  by  the  court  of  the  fact  that  the  cashier 
used  for  some  of  his  correspondence  bank  stationery,  and  signed 
some  of  his  letters  with  the  word  "cashier,"  or  the  abbreviation 
*'Ca,"  after  his  name. 

IMPUTABILITY    OF    KNOWLEDGE    TO    BANK 

The  question  frequently  arises  as  to  whether  certain  knowl- 
edge possessed  by  the  cashier  of  a  bank  will  be  imputed  to  the 
bank,  especially  when  the  knowledge  was  acquired  by  him  in 
a  capacity  in  which  he  had  a  separate  personal  interest. 

It  is  a  general  rule  that  notice  of  a  fact  acquired  by  an 


BANK    CASHIERS  15 

agent  while  transacting  the  business  of  his  principal  is  notice  to 
his  principal,  and  this  rule  applies  'to  banking  and  other  corpo- 
rations as  well  as  to  individuals.  But  the  reason  of  the  rule, 
the  Supreme  Court  of  Missouri  says,  ceases  when  the  agent  acts 
for  himself,  and  not  for  his  principal,  and  the  rule  itself  ought 
not  to  apply  in  such  a  case. 

Where  an  officer  of  a  bank,  as  for  example  a  cashier, 
transacts  his  own  business  at  the  bank,  as  it  has  already  been 
stated  that  this  court  holds  he  has  a  perfect  right  to  do,  in  such 
a  transaction  his  interest  is  adverse  to  the  bank  and  he  repre- 
sents himself  and  not  the  bank.  And  the  law  is  settled  that, 
when  an  officer  of  a  corporation  is  dealing  with  it  in  his  indi- 
vidual interest,  the  corporation  is  not  chargeable  with  his  un- 
communicated  knowledge  of  facts  derogatory  to  his  title  to  the 
property  which  is  the  subject  of  the  transaction. 

In  the  elucidation  of  the  same  point,  the  Supreme  Court  of 
South  Dakota  says  that  the  authorities  recognize  a  marked  dis- 
tinction between  cases  where  a  cashier  not  only  acts  for  himself, 
but  also  as  such  cashier,  and  cases  where  the  person,  though 
cashier,  acts  for  himself  only,  or  for  an  outside  firm  of  which 
he  is  a  member,  and  the  bank  is  represented  in  the  transaction 
by  other  officers.  In  the  latter  cases  the  knowledge  of  the  cash- 
ier is  not  imputed  to  the  bank. 

WHEN  PARTNER  IN  OUTSIDE  FIRM 

So,  where  a  partner  in  an  outside  firm  sells  to  a  bank  of 
which  he  is  a  cashier  a  note  belonging  to  the  firm  and  the  bank 
acts  wholly  through  its  discount  committee,  of  which  the  cashier 
is  not  a  member,  the  bank  is  not  affected  by  knowledge  pos- 
sessed by  him,  but  not  communicated,  of  infirmities  in  the  note. 

It  cannot  be  successfully  contended,  it  is  held  in  the  Ala- 
bama case  of  Scott  vs.  Choctaw  Bank,  59  Southern  Reporter, 
184,  that,  because  the  cashier  of  a  bank,  as  a  partner  of  a  seller 
of  a  note  to  the  bank,  was  charged  with  notice  of  the  manner 
in  which  the  seller  acquired  the  note,  the  bank,  which  had  no 
connection  with  such  seller,  was  charged  with  such  notice,  sim- 
ply because  such  seller's  partner  was  its  cashier.  The  notice 
which  the  law  imputed  to  the  cashier,  as  a  partner  of  the  seller, 
was  not  imputable  to  him  as  the  cashier  of  the  bank,  it  not  ap- 
pearing that  he  had  any  knowledge  of  the  existence  of  the  note 
until  it  was  acquired  by  the  bank,  or  of  the  alleged  fraud  affect- 
ing it. 

WHEN   OFFICER   OF   ANOTHER   CORPORATION 

A  Kentucky  case,  where  a  bank  sought  to  hold  the  directors 
of   a   corporation   personally   liable,   under   the   statute   of   that 


16  BANK    CASHIERS 

state,  for  incurring  an  indebtedness  in  excess  of  its  charter  lim- 
itation, it  appeared  that  one  of  the  directors  of  the  corporation, 
who  was  at  the  same  time  its  president  and  general  manager, 
was  also  the  cashier  of  the  bank.  In  consequence  of  this,  it 
was  contended  that  the  bank  was  charged  with  notice  of  the 
limitation  in  the  charter  of  the  corporation,  as  well  as  with 
notice  that  this  official  was  violating  it.  But  the  Court  of  Ap- 
peals of  Kentucky  holds  that  that  was  not  so. 

The  court  says  that  the  man's  position  as  agent  of  the  bank 
would  impute  knowledge  to  it  which  he  possessed  only  upon 
reasonable  presumption  that  he  would  divulge  to  it  his  knowl- 
edge. His  dual  position  rendered  it  more  probable  that  he 
would  not  disclose  his  knowledge  in  this  instance.  His  personal 
interest  was  contrary  to  that  of  the  bank;  he  was  actually  de- 
ceiving it,  it  seemed,  in  the  transaction.  But,  whether  he  was 
actively  misleading  the  bank  or  not,  it  was  contrary  to  probability 
that  he  would  have  divulged  to  it  matter  within  his  knowledge 
which  if  divulged  would  have  prevented  the  consummation  of 
his  transaction  with  it.  Therefore  the  presumption  did  not 
obtain  that  he  did  impart  his  knowledge  to  the  bank.  Presump- 
tions of  a  fact  are  based  upon  probabilities,  not  improbabilities. 

WHEN  IN  CHARGE  OF  LIQUIDATING  BANK 

After  a  bank  had  closed  its  doors  and  the  directors  had 
appointed  a  man  to  take  charge  of  its  accounts  and  bills  receiv- 
able, the  cashier  continued  in  charge  of  the  banking  house  and 
books  of  the  bank,  attending  to  the  correspondence,  making  some 
collections,  and  still  signing  as  cashier  such  checks  as  were  issued 
in  the  name  of  the  bank.  Then  a  question  arose  as  to  the  ex- 
tent of  his  power  and  whether  the  bank  would  be  bound  by  in- 
formation acquired  by  him.  This  was  in  a  suit  brought  by  the 
bank  to  recover  a  debt  which  the  defendant  claimed  had  been 
compromised  and  settled  by  the  party  given  charge  of  the  ac- 
counts, with  knowledge  thereof  on  the  part  of  the  cashier. 

The  evidence  showed  that  the  cashier  was  not  only  a  director 
and  the  cashier  of  the  bank,  but,  on  the  facts  of  the  case,  its 
general  agent.  The  bank  was  in  the  process  of  liquidation,  and 
he  had  all  the  power  and  authority,  not  only  of  a  cashier,  tech- 
nically so  considered,  but  very  much  more  power.  He  was  in 
general  charge  of  all  the  affairs  of  the  bank,  with  full  authority 
to  manage  and  control  the  same,  in  the  process  of  liquidation. 

The  Supreme  Court  of  Mississippi  holds  that,  on  the  facts 
of  this  case,  the  knowledge  of  the  cashier,  who  had  very  much 
more  than  the  mere  technical  power  usually  exercised  by  a  cash- 
ier, was  clearly  the  knowledge  of  the  bank,  within  any  correct 


BANK    CASHIERS  17 

statement  of  the  rule  on  this  subject  to  be  found  in  the  books,  so 
that  his  knowledge  of  the  transaction  with  the  defendant  was 
imputable  to  the  bank. 

The  bank  was  bound  by  his  action. 

KNOWING   CONDITIONAL   CHARACTER  OF    NOTE 

An  applicant  for  life  insurance,  subject  to  the  passing  of  a 
physical  examination  and  acceptance  by  the  company,  gave  to 
the  agent  a  negotiable  note  for  the  first  year's  premium,  with 
the  understanding  that  the  note  was  to  be  returned  if  the  appli- 
cation was  rejected,  which  was  known  to  the  cashier  of  a  bank, 
who  heard  all  the  conversation  between  the  parties  and  was  fa- 
miliar with  the  methods  of  the  insurance  agent  and  of  the  com- 
pany. Shortly  afterward,  or  within  10  days,  the  cashier,  as 
the  executive  officer  of  the  bank,  discounted  the  note  for  the 
agent. 

The  Supreme  Court  of  North  Dakota  holds,  in  Citizens' 
State  Bank  of  Lankin  vs.  Garceau,  134  Northwestern  Reporter, 
882,  that,  under  the  circumstances,  the  bank  was  charged  with 
knowledge  of  the  facts  of  which  its  cashier  had  knowledge  or 
notice,  so  that  it  was  not  a  holder  in  due  course,  and  its  action 
in  taking  the  instrument  amounted  to  bad  faith. 

The  general  rule  is  that  a  bank  is  charged  with  notice  of 
the  facts  of  which  its  cashier  has  notice  or  knowledge,  excep- 
tions to  the  rule  arising  in  the  case  of  his  dealings  with  the  bank 
in  his  own  interest,  when  it  is  adverse  to  that  of  the  bank,  or 
where  so  long  a  time  has  elapsed  since  he  acquired  knowledge 
of  the  transaction  that  when  the  negotiation  takes  place  his 
knowledge  on  the  subject  is  not  fresh  in  mind. 

That  the  delivery  of  the  note  was  conditional,  or  that  the 
title  of  the  payee  was  defective,  might  be  shown  by  circum- 
stances, without  any  express  words  to  that  effect. 

IN  TAKING  DEEDS  FROM  AN  INSOLVENT 

A  cashier  took  from  a  clearly  insolvent  customer  deeds  to 
all  his  real  estate  of  actual  value  less  than  the  amount  he  owed 
the  bank.  By  agreement  the  deeds  were  not  to  be  recorded,  but 
to  be  held  as  security  for  a  note  given  for  the  amount  owed  the 
bank.  When  the  grantor  sold  some  of  the  property,  he  was  per- 
mitted to  make  his  own  deeds  and  to  receive  back  the  correspond- 
ing deeds  from  the  bank  on  the  application  of  the  proceeds  of 
sale  to  the  bank's  indebtedness.  About  five  years  after  the  deeds 
were  given  to  the  cashier,  the  two  remaining  ones  were  placed  on 
record,  which  was  less  than  four  months  from  the  date  that  an 
involuntary  petition  in  bankruptcy  was  filed  against  the  grantor. 


18  BANK    CASHIERS 

The  cashier,  a  United  States  District  Court  in  Ohio  holds, 
was  chargeable  with  knowledge  of  the  insolvent  condition  of  the 
grantor  at  the  time  these  deeds  were  made,  and  whatever  knowl- 
edge, actual  or  constructive,  the  cashier  had  was  chargeable  to 
the  bank.  It  also  holds  that  the  preference,  manifestly  attempt- 
ed in  behalf  of  the  bank,  should  be  referred  for  date  to  the  time 
of  filing  the  deeds,  and  that  the  deeds  must  be  held  void  as 
preferences. 

DEALING   WITH   DEBTS 

The  collection  of  debts  due  a  bank,  the  Supreme  Court  of 
California  says,  in  McBoyle  vs.  Union  National  Bank,  122  Pacific 
Reporter,  458,  is  clearly  a  part  of  its  ordinary  business,  and 
hence  such  collection,  together  with  any  acts  incidental  or  neces- 
sary to  such  collection,  may  properly  be  carried  on  by  the  cashier 
under  his  inherent  authority. 

The  Supreme  Court  of  Iowa  also  says  that  it  has  been  held 
that  the  cashier  of  a  bank  may  compromise  a  debt  due  the  bank ; 
may  institute  suits  and  attachment  proceedings  in  the  name  of 
the  bank;  may  employ  an  attorney  to  bring  suit;  and  may  take 
such  other  measures  as  are  reasonably  adequate  to  obtain  the  col- 
lection of  accounts  or  debts  due  the  bank. 

But  the  Supreme  Court  of  Michigan  quotes,  apparently 
with  some  approval,  from  one  of  the  briefs  in  a  case,  that  a 
cashier  of  a  bank  has  no  legal  authority  by  virtue  of  his  position 
to  compromise  a  claim  of  the  bank,  nor  to  execute  a  composition 
agreement  and  release  therefor. 

Neither  has  a  cashier  as  such  power  to  accept  stocks  and 
bonds  in  payments  of  notes  due  the  bank. 

Equally  the  cashier  has  no  inherent  power,  the  Supreme 
Court  of  Alabama  holds,  in  Montgomery  Bank  &  Trust  Co.  vs. 
Walker,  61  Southern  Reporter,  951,  to  pledge  the  assets  of  the 
bank  for  the  payment  of  an  antecedent  debt.  He  may  dispose 
of  the  bank's  negotiable  securities  in  the  regular  course  of  busi- 
ness, but  he  cannot  pledge  its  assets  for  the  payment  of  an  ante- 
cedent debt. 

And  where  a  merchant,  for  and  in  consideration  of  a  sum 
certain  in  the  bill  of  sale  expressed,  sells  and  conveys  his  stock 
of  goods  to  a  bank  in  satisfaction  of  his  pre-existing  indebtedness 
to  the  bank,  with  covenants  of  warranty  against  the  claims  and 
demands  of  all  others,  it  is  held  in  the  Oklahoma  case  of  Farm- 
ers' National  Bank  of  Durant  vs.  Ardmore  Wholesale  Grocery 
Co.,  127  Pacific  Reporter,  1071,  that  oral  evidence  is  inadmissible 
to  prove,  in  an  action  by  a  creditor,  that  the  cashier  of  the  bank 


BANK    CASHIERS  19 

had  agreed  with  the  merchant  prior  to  the  execution  of  the  bill 
of  sale  to  pay  the  debt  sued  for. 

The  cashier  of  a  bank  has  no  implied  authority,  as  a  matter 
of  law,  the  Court  of  Civil  Appeals  of  Texas  holds,  in  Young- 
berg  vs.  El  Paso  Brick  Co.,  155  Southwestern  Reporter,  715, 
to  make  a  binding  agreement  for  the  bank  to  indemnify  and 
hold  another  harmless  from  the  claims  of  a  third  party. 

GUARANTEEING    LOAN    TO    PAY   BAD    DEBT    TO    BANK 

In  a  Georgia  case,  a  national  bank  loaned  to  one  of  its 
customers,  a  company,  an  amount  greater  than  10  per  cent  of 
the  bank's  unimpaired  capital  stock  and  surplus,  in  violation 
of  the  federal  statute.  The  cashier  of  the  bank,  who  was  also 
.secretary  and  treasurer  of  the  company,  notified  another  party 
of  the  situation,  stating  that  the  only  way  the  bank  could  extend 
any  further  credit  to  the  company  was  by  procuring  a  loan 
from  him,  to  be  secured  by  the  bank,  and  induced  him  to  lend 
the  company  $15,000,  upon  the  guaranty  by  himself  (the  cashier) 
individually,  and  by  the  bank  through  him,  of  the  payment  of 
the  company's  notes  for  the  amount  borrowed. 

The  Supreme  Court  of  Georgia  holds  (1)  that  a  national 
bank  cannot  ratify  such  an  act;  and  (2)  that  the  fact  that  the 
cashier's  object  in  making  statements  to  the  lender  to  induce 
him  to  make  the  loan  was  to  procure  to  the  bank  the  payment 
of  what  was  due  it,  and  to  relieve  himself  from  liability  for 
making  an  excessive  loan,  as  also  the  fact  that  the  bank  received 
$11,640.02  of  the  $15,000  borrowed,  did  not  prevent  it  from 
setting  up  the  invalidity  of  the  guaranty  on  its  part. 

A  DIFFERENT  RULING 

In  a  Missouri  case,  a  man  in  the  ''grain"  line,  or  trying  to 
woo  fortune  through  puts  and  calls  on  the  grain  market,  or 
betting  on  the  future  price  of  grain,  became  indebted  to  a  bank 
for  some  $65,000,  the  cashier  of  the  bank  apparently  being 
jointly  interested  with  him  in  some  of  his  deals.  Thereafter  the 
cashier  took  this  man  with  him  to  the  bank's  correspondent  in 
another  city,  and  arranged  what  was  practically  a  loan  of  $20,000 
to  reduce  the  man's  account,  the  loan  being  secured  by  certain 
collaterals  and  the  bank's  guaranty  executed  by  the  cashier. 

The  Supreme  Court  of  Missouri  holds,  in  Third  National 
Bank  of  St.  Louis  vs.  St.  Charles  Savings  Bank,  149  South- 
western Reporter,  495,  that  while,  under  the  strict  terms  of  the 
guaranty  (and  looking  no  further),  the  bank  was  neither  loan- 
ing money  nor  receiving  money  in  the  ordinary  course  of  bank- 
ing business,  but  was  lending  its  credit  for  the  accommodation 


20  BANK    CASHIERS 


of  another  through  the  unauthorized  act  of  its  cashier,  the 
facts  made  this  a  typical  case  in  which  to  apply  the  principles 
underlying  an  action  for  money  had  and  received  (by  the  bank). 

May  a  defendant,  the  court  asks,  repudiate  the  negotiations 
of  its  cashier  bringing  to  it  such  a  windfall  (with  one  hand)  and 
at  the  same  time  (with  the  other)  clutch  the  gains?  May  it 
take  the  gift  and  repudiate  the  hand  fetching  it?  May  it  take 
as  principal  and  deny  the  agency  ?  To  so  hold  would  be  bad  law 
and  worse  morals.  Even  the  red  Indian  has  an  adage:  You 
should  not  call  the  forest  that  sheltered  you  shrubbery.  To 
say  of  one  that  he  drank  of  a  spring  and  then  turned  his  back 
on  it,  or  climbed  by  a  ladder  and  then  struck  it  down,  is  but  to 
speak  the  bitter  proverbs  of  the  fireside  against  ingratitude. 

To  somewhat  similar  effect,  the  Supreme  Court  of  Iowa 
holds,  in  a  1909  decision,  that  a  bank  cannot  be  heard  to  deny 
the  authority  of  its  cashier  while  receiving  and  retaining  the 
benefits  of  a  contract  made  by  him  as  its  representative,  as,  for 
example,  his  agreement  for  the  reconveyance,  on  payment  of  a 
certain  sum  within  a  specified  time,  of  property  deeded  to  the 
bank  in  a  settlement. 

BINDING  AGREEMENT  WITH  SURETIES 

The  Supreme  Court  of  Iowa  further  holds  that,  in  the  ab- 
sence of  a  special  restriction  known  to  the  party  with  whom  he 
deals,  the  apparent  scope  of  the  general  power  and  authority 
of  a  bank  cashier  is  broad  enough  to  cover  an  agreement  with 
the  sureties  on  a  note  to  proceed  to  make  the  debt,  if  practicable, 
out  of  land  of  the  principal  debtor  pointed  out  by  them,  and  if, 
by  such  agreement  they  are  lulled  into  a  feeling  of  security,  and 
led  to  give  over  into  the  hands  of  the  bank  the  instituting  and 
prosecution  of  the  action  against  the  principal  debtor,  then,  to 
the  extent  of  the  injury  they  sustain  by  their  reliance  upon  the 
conduct  and  representations  of  the  cashier,  they  will  be  entitled 
to  defend  against  the  bank's  demand  against  them  on  the  note. 

MAY    MAKE    AFFIDAVITS    AND    AUTHENTICATE    CLAIMS 

In  a  case  where  a  bank  filed  against  the  estate  of  a  man 
who  had  died  a  claim  on  notes  aggregating  $3,011.50,  the  admin- 
istrator of  the  estate,  desirous  of  defeating  the  claim,  objected, 
for  one  thing,  to  the  sufficiency  of  its  authentication  by  the 
cashier  of  the  bank.  This  was  in  the  form  of  an  affidavit  by 
the  cashier  attached  to  the  claim,  wherein  the  cashier  stated 
that  he  was  such  and  authorized  to  make  the  affidavit,  described 
the  notes  and  stated  that  they  were  just,. due,  and  unpaid,  the 
sum  due,  and  that  there  were  no  offsets,  credits  or  payments 
due  on  the  same. 


n 


BANK    CASHIERS  21 

In  holding  the  cashier's  affidavit  to  be  a  substantial  com- 
pliance with  the  requirements  of  the  Texas  statute,  the  Court  of 
Civil  Appeals  of  that  state  says  that  the  bank  was  a  corpora- 
tion; therefore  could  make  no  affidavit,  except  by  its  officer, 
whose  act  was  the  act  of  the  bank.  The  cashier  had  conducted 
the  transaction  for  the  bank,  was  cognizant  of  all  the  facts,  and 
the  law,  under  these  circumstances,  would  consider  the  affidavit 
as  made  by  the  owner.  Had  the  cashier  exceeded  his  power, 
or  made  an  insufficient  affidavit,  the  bank  might  not  have  re- 
covered judgment  for  the  amount  due  it. 

DEALING  WITH  COLLATERALS 

A  Missouri  statute  provides  that  the  cashier  of  a  bank  shall 
have  no  power  to  indorse,  sell,  pledge  or  hypothecate  any  notes, 
bonds  or  other  obligations  received  by  the  bank  for  money 
loaned,  until  such  power  has  been  given  him  by  the  board  uf 
directors,  in  a  regular  meeting  of  the  board  of  which  a  written 
record  has  been  kept.  But  his  authority  to  make  loans  and 
take  collateral  security  therefor,  and  his  duty  in  disposing  of 
the  collateral  when  the  debt  to  the  bank  is  paid,  the  Springfield 
(Mo.)  Court  of  Appeals  holds,  is  not  affected  by  the  statute. 
As  to  these  matters,  he  clearly  has  authority  to  bind  the  bank  in 
the  absence  of  notice  to  the  party  dealing  with  him  of  a  want  of 
such  authority. 

Loaning  money  and  taking  collateral  security  therefor,  and 
returning  to  the  owner  the  collateral  when  the  debt  secured 
by  it  is  paid,  is  an  everyday  occurrence  in  the  banking  busi- 
ness, and  as  to  all  the  ordinary  business  of  the  bank  the  cashiei 
is  the  executive  arm  of  its  board  of  directors,  and  may  bind 
the  bank  by  his  acts. 

In  the  case  before  the  court  a  bank  held  a  $1,500  note  and 
deed  of  trust  upon  real  estate  as  security  for  a  loan  of  $700. 
Other  parties  made  an  additional  loan  on  the  same  collateral, 
and  the  cashier  indorsed  a  statement  on  the  back  of  their  note 
and  contract  to  the  effect  that  the  bank  recognized  same  as  a 
second  incumbrance  on  the  property  thereby  pledged  and  agreed 
to  turn  over  and  deliver  said  property  to  the  holder  of  such 
second  note  when  the  $700  note  due  the  bank  should  be  paid. 

Upon  the  payment  to  the  bank  of  its  debt,  it  was  the  duty 
of  the  cashier  in  charge  of  the  bank's  assets  and  collaterals  to 
return  the  $1,500  note  and  deed  of  trust  to  the  pledgor,  or,  in 
case  of  a  transfer  of  his  interest  therein  and  notice  to  the  bank, 
to  deliver  it  to  the  then  owner,  and  for  a  failure  to  perform 
that  duty  the  bank  would  be  liable. 

It  was  not  necessary  for  the  cashier  to  execute  the  sup- 


22  BANK    CASHIERS 

posed  contract  of  the  bank  as  indorsed  upon  the  back  of  the 
note  and  contract  referred  to,  in  order  to  fasten  upon  the  bank 
the  duty  to  return  to  the  proper  party  the  collateral  held  by  it. 
That  duty  became  fixed  when  the  collateral  was  deposited  with 
it,  and  the  indorsement  of  the  cashier  added  nothing  to  it.  The 
only  purpose  his  indorsement  could  serve  was  to  charge  the  bank 
with  notice  of  the  change  of  ownership,  and  that  notice — not 
the  supposed  contract  signed  by  the  cashier — fixed  upon  the  bank 
the  duty  to  return  the  collateral  to  the  second  pledgees  when 
the  debt  to  the  bank  was  paid. 

Where  a  national  bank  has  bought  stock  pledged  to  it,  its 
duty  is  to  dispose  of  such  stock  as  soon  as  a  sale  can,  to  proper 
advantage,  be  made,  and  the  Supreme  Court  of  California  holds 
the  resale  of  such  stock  may  properly  be  regarded  as  one  of  the 
steps  taken  in  the  process  of  collection,  a  part  of  the  ordinary 
business  of  the  bank,  within  the  powers  of  the  cashier. 

POWER  TO  EXECUTE   COMMERCIAL   PAPER. 

With  regard  to  the  execution  of  paper,  the  Supreme  Court 
of  Wisconsin  decided,  back  in  1861,  following  a  New  York  case, 
that,  even  where  there  was  a  statutory  provision  requiring  that 
the  contracts,  notes  and  bills  of  a  banking  association  should 
be  signed  by  its  president,  or  vice  president,  and  cashier,  that  a 
note  was  properly  executed  by  the  cashier  alone,  the  statute  apply- 
ing only  to  agreements  where  both  parties  became  obligated  and 
to  notes  and  bills  issued  for  circulation  as  money.  It  adopted 
the  view  that  negotiable  bills,  notes,  drafts  and  other  instruments 
of  that  nature  are  good  if  executed  by  the  cashier  or  other  agent 
properly  designated  and  authorized  for  that  purpose. 

MAY  EXECUTE  NOTES  FOR  BORROWED  MONEY 

A  year  later  the  same  court  held  that  it  was  competent  for 
the  cashier  of  a  bank,  as  agent  for  the  board  of  directors  to 
execute  a  promissory  note  for  money  borrowed  to  use  in  its 
business. 

And  the  Supreme  Court  of  Florida  holds  that  a  cashier 
has  the  inherent  power  to  borrow  money  on  behalf  of  his  bank, 
and  may  bind  the  bank  by  a  promissory  note  executed  therefor. 

DRAWING    OF    DRAFTS    ON    CORRESPONDENT    BANKS 

A  bank  cashier  has  implied  authority,  the  Appellate  Court 
of  Illinois  holds,  to  draw  drafts  on  correspondent  banks.  Of 
course,  his  actual  authority  is  limited  to  transactions  in  the  inter- 
est of  the  bank,  but  because  of  his  apparent  authority  he  binds 
the  bank,  for  example,  by  a  bearer  draft,  whether  the  draft  is 
sold  to  a  customer  or  utilized  for  his  own  purposes. 


BANK    CASHIERS  23 

It  is  also  immaterial  whether  such  a  draft  is  made  expressly 
payable  to  bearer,  or  to  a  known  individual  intended  by  the 
cashier  not  to  have  any  interest  therein  and  whose  name  is  sub- 
sequently indorsed  by  the  cashier  for  his  own  purposes. 

Money  paid  on  such  an  instrument  to  an  innocent  pur- 
chaser under  such  an  indorsement  cannot  be  recovered,  because, 
while  the  indorsement  is  in  a  sense  a  forgery,  nevertheless,  the 
nominal  payee  is  not  the  actual  payee,  the  actual  payee  being 
the  bearer,  because  the  bank,  through  its  cashier,  intended  to 
make  the  instrument  payable  not  in  name  but  in  fact  to  bearer. 
The  intention  of  the  cashier  is  the  intention  of  the  drawer  within 
the  rule  that  an  instrument  made  payable  to  a  fictitious  person 
is  payable  to  bearer. 

NEGOTIATION  AND  TRANSFER  OF  PAPER 

That  the  cashier  of  a  bank  may  negotiate  and  transfer,  on 
behalf  of  the  bank,  negotiable  paper  owned  by  it,  the  Supreme 
Court  of  California  says,  in  McBoyle  vs.  Union  National  Bank, 
122  Pacific  Reporter,  458,  is  universally  held. 

But  a  cashier  of  a  bank  has  no  authority  by  virtue  of  his 
office,  the  Supreme  Court  of  Iowa  holds,  in  an  1888  case,  to  pay 
a  depositor  by  transferring  notes  to  him;  and,  in  the  absence 
of  special  authority  in  the  cashier  to  make  such  transfer,  the 
depositor  will  be  regarded  as  holding  the  notes,  or  their  pro- 
ceeds, in  trust  for  the  bank,  when  garnisheed  by  its  creditors. 
The  court  does  not  think  that  bank  depositors  are  usually  paid 
in  that  manner. 

ACCEPTANCE  OF  WORTHLESS   CHECKS 

Likewise,  in  a  1904  decision,  the  court  holds  that  a  cashier 
of  a  bank  has  no  right  or  authority  to  accept  a  worthless  check 
on  another  bank,  and  charge  his  bank  with  the  amount  thereof. 

DUTY  AND  PRESUMPTION  AS  TO  PROTESTING  PAPER 

In  the  absence  of  any  showing  that  it  was  not  the  custom 
of  the  cashier  of  a  particular  bank  to  attend  to  the  protesting 
of  paper  and  the  giving  of  notice  of  dishonor,  the  Court  of  Ap- 
peals of  Kentucky  holds,  in  First  National  Bank  of  Louisville 
vs.  Bickel,  156  Southwestern  Reporter,  856,  that  the  court  must 
presume  that  it  was  the  duty  of  the  cashier  of  that  bank  to 
have  discharged  that  duty  in  respect  to  certain  notes,  it  being 
usual  and  customary  for  the  cashier  of  a  bank  to  look  after  mat- 
ters of  this  kind.  Nor  did  the  fact  that  the  indorser  was  an 
officer  of  the  bank  relieve  the  bank  from  the  necessity  of  giving 
him  notice. 


24  BANK    CASHIERS 

CONSIDERATION  FOR  INDORSEMENT 

A  cashier's  liability  to  his  bank  under  the  state  law  for  per- 
mitting a  borrower  to  incur  an  excessive  indebtedness  to  it,  a 
United  States  Circuit  Court  of  Appeals  holds,  is  a  sufficient  con- 
sideration to  support  his  promise  to  pay  that  indebtedness  to  the 
bank,  and  is  sufficient  to  support  his  indorsement  of  notes  given 
therefor. 

SUFFICIENCY  OF   INDORSEMENTS 

The  Supreme  Court  of  Wisconsin,  in  1870,  had  a  case  in- 
volving a  note  for  $1,005.19,  payable  to  Wadsworth,  Adams  & 
Co.,  which  was  indorsed  by  the  payees  and  by  *'Geo.  Buckley, 
Cas."  It  holds  that  the  latter  indorsement  must  be  treated  as  one 
by  Buckley  in  his  official  character  as  cashier,  binding  upon  the 
bank. 

Authorities  abundantly  show,  the  court  says,  that  it  is  not 
necessary  that  the  indorsement  should  be  in  the  name  of  the 
corporation,  but  that  an  indorsement  by  the  cashier  of  a  bank, 
adding  the  suffix  "Cashier,'/  or  "Cash'r,  or  "Cr.,"  or  "Cash.," 
will  be  regarded  as  an  official  indorsement. 

Moreover,  the  bank  may  be  effectually  liable  although  the 
indorsement  be  an  accommodation  one  for  the  benefit  of  the 
payee.  This  is  held  upon  the  principle  that,  as  the  cashier  is 
the  person  authorized  to  indorse  notes  for  the  bank,  a  purchaser 
of  such  paper  in  good  faith  before  maturity  is  not  bound,  when 
he  takes  it  thus  properly  indorsed,  to  inquire  whether  the  bank 
owned  it  when  it  was  indorsed,  or  not. 

In  this  case  the  purchasers  of  the  note  in  question  applied 
to  the  cashier,  Buckley,  to  know  if  his  indorsement  was  genuine, 
and  asked  if  "it  was  all  right,"  and  were  told  it  was.  ''Perhaps 
the  law  would  not  impose  the  duty  on  the  purchasers  of  in- 
quiring of  the  cashier,  before  purchasing  the  note,  whether  it 
was  all  right;  but  the  fact  that  they  did  exercise  that  diligence 
could  not  weaken  their  case. 

INFORMATION  GIVEN  AWAY  FROM  BANK 

Of  even  more  interest  is  the  fact  that  it  was  objected  that 
this  information  was  not  sought  of  the  cashier  while  at  the 
counter  in  the  bank  in  Elkhorn,  but  when  he  was  in  Milwaukee. 
But,  to  quote  the  court,  what  earthly  difference  could  that  make  ? 
Suppose  the  parties  had  seen  him  on  the  street  in  Elkhorn,  or 
on  the  steps  of  the  bank  building,  and  made  this  inquiry  in  re- 
gard to  the  paper.  Can  it  be  seriously  claimed  that  they  would 
have  no  right  to  rely  upon  his  representations  in  respect  to  his 
indorsement,  unless  made  by  him  while  standing  at  the  counter? 


BANK    CASHIERS  25 

It  well  might  be  that  an  officer  might  decline  to  answer 
such  inquiries  when  away  from  the  bank,  without  its  books 
before  him  to  refresh  his  recollection.  But  certainly  if  he  does 
undertake  to  give  the  information  \vhen  away  from  the  bank,  a 
party  about  purchasing  a  note  indorsed  by  him  would  have  the 
right  to  rely  upon  the  representations  which  the  cashier  might 
make  in  regard  to  the  nature  and  character  of  the  indorsement. 

On  the  other  hand,  nearly  two  decades  later,  when  an  assist- 
ant cashier  was  inquired  of,  in  another  place  than  that  where 
his  bank  was  located,  with  reference  to  a  party's  financial  con- 
dition, the  same  court  holds  that,  the  bank  having  no  business 
with  the  person  making  the  inquiry  at  the  time,  and  the  assistant 
cashier  not  being  at  the  time  transacting  any  business  for  it,  his 
statement,  although  it  induced  the  party  making  inquiry  to  grant 
a  credit,  did  not  bind  the  bank,  the  assistant  cashier  not  acting 
at  the  time  within  the  scope  of  his  authority  as  assistant  cashier 
of  the  bank. 


USURPING    FUNCTIONS    OF    DISCOUNT    COMMITTEE 

The  Supreme  Court  of  Michigan  holds,  in  a  case  where  the 
bank  had  a  discount  committee  which  met  almost  daily  and  was 
at  all  times  accessible  to  the  cashier,  and  there  was  nothing  to 
show  that  any  unusual  powers  had  been  conferred  upon  him, 
that,  under  such  circumstances,  the  cashier  could  not  bind  the 
bank  by  a  compromise  agreement  with  an  indorser  whereby  he 
should  be  released  from  a  portion  of  his  liability. 

The  Supreme  Court  of  Appeals  of  West  Virginia  says,  in 
case  of  First  National  Bank  vs.  Company,  that  the  stockholders 
of  a  bank  intrust  the  lending  of  its  money  and  the  management 
of  its  afifairs  to  a  board  of  directors,  and,  if  the  bank's  charter 
does  not  authorize  the  cashier  to  lend  its  funds,  he  can  derive  his 
authority  to  do  so  only  from  the  board  of  directors,  who  must 
act  collectively,  and  as  a  body,  and  who  are  not,  individually, 
by  virtue  of  their  office,  the  several  agents  of  the  bank. 

A  cashier  has  no  authority,  simply  by  virtue  of  his  office, 
to  bind  his  bank  by  an  agreement  made  with  the  indorsers  on  a 
promissory  note,  and  unknown  to  the  directors,  to  the  effect  that 
each  of  said  indorsers  shall  be  liable  only  for  a  certain  propor- 
tion of  the  debt.  It  matters  not  whether  such  contract  relates 
to  original  notes  presented  for  discount,  or  to  notes  taken  either 
in  payment,  or  in  renewal,  of  pre-existing  notes. 

If  indorsers  have  been  deceived  by  trusting  too  much  to 
the  authority  of  the  cashier,  they  may  properly  be  said  to  have 
voluntarily  taken  the  risk  in  relying  upon  the  cashier's  assump- 
tion of  power,  and  they  must  suffer  the  consequences  resulting 


26  BANK    CASHIERS 

from  their  failure  to  make  further  inquiry  into  his  authority. 
The  stockholders  of  the  bank  should  not  be  made  to  suffer  be- 
cause of  the  unwarranted  assumption  of  power  on  the  part  of 
the  cashier. 

PRESUMPTION    ON    PRESENTING    NOTE    FOR    DISCOUNT 

When  an  ordinary  person  presents  for  discount,  before  ma- 
turity, a  note  made  by  himself  and  indorsed  by  the  payee,  the 
Supreme  Court  of  Pennsylvania  holds  that  the  bank  has  the 
right  to  rely  upon  the  presumption  that  he  is  the  owner  of  the 
paper,  and  that  the  payee  is  an  accommodation  indorser,  and  it 
may  pay  the  money  to  the  party  in  possession  of  the  note,  or 
credit  it  to  his  account  with  safety.  But,  where  a  cashier  of  a 
bank  presents  such  paper  to  his  own  institution  for  discount,  aod 
the  payee  and  indorser  is  a  depositor  of  the  bank,  who  has  been 
in  the  habit  of  doing  business  with  it,  the  possession  of  the  note 
by  the  cashier  raises  no  presumption  that  he  is  the  owner  of  the 
paper;  on  the  contrary,  the  presumption  is  that  it  has  been 
handed  to  him  for  the  purpose  of  discount  for  the  depositor's 
credit. 

CHECKS   AND  DRAFTS   DRAWN   FOR  OWN   BENEFIT 

Although  the  cashier  of  a  bank  may  have  authority  to  draw 
checks  in  the  name  of  the  bank  in  the  course  of  the  bank's  busi- 
ness, the  Supreme  Court  of  Missouri,  Division  No.  2,  holds  that 
no  authority  is  to  be  implied  to  draw  checks  in  the  name  of  the 
bank  for  his  private  use  and  benefit.  True,  the  checks  in  the 
case  before  the  court,  that  of  the  St.  Charles  Savings  Bank  vs. 
Edwards  and  others,  147  Southwestern  Reporter,  978,  were  not 
payable  to  the  cashier,  and  did  not  show  on  their  face  that  they 
were  drawn  for  his  use,  and  doubtless  an  innocent  indorsee  for 
value  could  collect  from  the  bank,  but  the  checks  were  drawn  for 
his  use,  and  of  this  fact  the  defendants  had  actual  knowledge. 
With  this  knowledge  they  accepted  the  checks  in  payment  of  his 
individual  debt.  They  did  that  at  their  peril,  taking  the  risk  of 
his  authority  to  so  draw  and  use  the  checks  of  his  principal.  Nor 
had  they  a  right  to  go  on  the  presumption  that  he  paid  the  bank 
for  the  checks  and  that  he  acted  honestly.  The  case  could  not 
be  settled  by  presumptions.  The  burden  was  upon  them  to  show 
that  these  special  contracts  were  authorized,  or  that  the  bank 
had  received  full  value.  An  agent  cannot  act  both  for  his  prin- 
cipal and  himself  in  a  transaction  wherein  their  interests  are  an- 
tagonistic. 

Drafts,  drawn  by  the  cashier  of  a  bank  against  its  account 
with  a  correspondent,  in  favor  of  one  having  knowledge  that  he 


BANK    CASHIERS  27 

is  exercising  his  authority  as  cashier  or  agent  in  favor  of  him- 
self as  principal,  the  St.  Louis  Court  of  Appeals  holds,  are  pre- 
sumptively void,  and  the  obtaining  by  such  person  of  the  money 
on  them  is  presumptively  illegal,  the  burden  being  on  him  to 
overthrow  such  presumption.  The  court  holds,  St.  Charles  Sav- 
ings Bank  vs.  Orthwein  Investment  Co.,  140  Southwestern  Re- 
porter, 921,  that  no  implied  authority  in  a  cashier  to  issue  drafts 
for  his  own  benefit  can  arise  from  the  general  course  of  business 
in  the  bank.  Neither  can  the  bank  become  bound  by  his  acts  in 
issuing  such  drafts,  because  of  the  careless  trustfulness  of  the 
directors,  or  of  their  neglect  of  duty.  Nor  by  their  having  sanc- 
tioned the  issuance  by  him  of  other  drafts  than  those  in  question. 

DRAWING  CHECKS  ON  OUTSIDE  COMPANY 

It  may  be  well  to  record  here,  too,  the  decision  of  the  Su- 
preme Court  of  North  Dakota  to  the  effect  that,  if  a  cashier  has 
misappropriated  funds  of  the  bank,  and,  for  the  purpose  of 
covering  up  the  shortage  until  such  time  as  he  expects  to  be 
able  to  replace  the  amount,  draws  checks  of  a  company  of  which 
he  is  treasurer,  payable  to  the  bank,  and  charges  such  checks 
against  the  company  on  the  books  of  the  bank,  without  inten- 
tion to  transfer  funds  from  the  company  to  the  bank,  but  only 
for  the  purpose  of  temporarily  concealing  his  defalcation,  such 
checks  will  create  no  liability  in  favor  of  the  bank  against  the 
company. 

Similarly,  where  the  cashier  of  a  banking  institution  has  the 
entire  management,  control,  and  conduct  of  its  affairs  and  stands 
as  sole  representative  of  the  bank  in  all  transactions  relating  to 
the  receipt  and  disbursement  of  the  funds  of  depositors,  and  he, 
while  so  acting,  draws  checks  of  a  company  of  which  he  is  treas- 
urer, payable  to  the  bank,  presents  such  checks  as  treasurer  to 
himself  as  cashier,  takes  the  sum  of  money  paid  over  thereon 
and  misappropriates  it,  the  bank  for  which  he  is  acting  will  be 
held  to  a  knowledge  of  his  fraudulent  purpose  at  the  time  of 
presenting  the  checks,  and  cannot  base  thereon  a  claim  of  lia- 
bility in  its  favor  against  such  company. 

GIVING    PERSONAL    CHECK    TO    CUSTOMER 

In  the  fall  of  1909,  in  a  case  where  there  was  a  conversation 
with  the  cashier  of  a  bank  about  a  married  woman  31  years 
of  age  taking  a  certificate  of  deposit  for  a  sum  of  money 
already  in  the  bank,  but  the  cashier  gave  her  instead  his  personal 
check  on  the  bank,  the  Supreme  Court  of  Wisconsin  affirmed 
a  judgment  holding  the  bank  liable  for  the  amount.  It  says  that 
the  contractual  effect  of  passing  out  the  check  under  the  cir- 


28  BANK    CASHIERS 

cumstances  to  an  inexperienced  woman  was  at  least  a  matter  for 
the  jury.  If  the  cashier  intended  that  the  woman  should  under- 
stand that  she  was  making  a  contract  with  the  bank,  and  she  did 
so  understand,  that  was  sufficient,  there  being  an  obvious  con- 
sideration for  such  a  contract. 

Here  there  was  first  a  valid  oral  contract  between  the  bank, 
acting  through  its  cashier,  and  the  woman,  for  which  the  cashier 
without  the  knowledge  or  consent  of  the  woman  substituted  a 
writing  in  form  and  to  a  person  entirely  unauthorized.  The 
cashier's  check  thus  never  became  a  contract  at  all  because  not 
assented  to,  nor  even  a  proposal  to  contract  because  not  brought 
to  the  attention  of  the  other  party. 

The  prior  oral  contract  could  be  revoked  only  by  mutual 
consent  or  discharged  by  release,  or  its  enforcement  prevented 
by  what  is  termed  estoppel.  There  was  neither  by  the  mere  re- 
tention of  the  check  without  knowledge  of  its  contents  and  under 
the  mistaken  impression  that  it  was  given  pursuant  to  and  rep- 
resented the  prior  oral  contract  of  deposit. 

DESIGNATED  AGENT  TO  RECEIVE  PROCEEDS  OF  NOTE 

In  a  case  that  arose  in  Pennsylvania,  where  a  woman  signed 
a  note  for  $10,000  payable  to  the  order  of  a  bank,  at  the  instance 
of  the  cashier,  upon  the  understanding  that  he  was  to  invest 
the  proceeds  for  her,  which  he  failed  to  do,  but  appropriated 
them  to  his  own  use,  the  United  States  Circuit  Court  of  Appeals 
holds  that  the  woman  was  liable  on  the  note.  It  says  that,  in 
dealing  with  the  bank  with  respect  to  this  note,  the  cashier  was 
the  woman's  agent,  whatever  his  official  position  outside  of  that. 
The  bank  having  accepted  the  note  for  discount,  which  admit- 
tedly was  done  by  the  express  authority  of  the  directors,  was  not 
bound  to  see  that  the  woman  got  the  money,  so  long  as  it  was 
turned  over  to  her  accredited  agent  and  so  made  available  to 
her.  The  defection  came  after  the  bank's  participation  in  the 
transaction  had  ended,  when  the  cashier  failed  to  invest  the 
money  as  he  had  agreed  to — a  breach  of  faith  with  which  the 
bank  had  nothing  to  do,  and  which  the  fact  that  the  woman's 
agent  was  its  cashier  in  no  respect  qualified. 

EXTENDING  NOTES 

It  has  been  held  that  a  cashier  has  no  implied  authority  to 
extend  the  time  of  payment  of  a  note  where  the  effect  would 
be  to  release  a  surety.  The  Supreme  Court  of  Kansas,  however, 
in  First  National  Bank  of  Olathe  vs.  Livermore,  133  Pacific  Re- 
porter, 734,  assumes,  without  deciding,  that,  where  additional 
security  is  taken,  the  cashier  has  authority,  in  virtue  of  his  office, 


BANK    CASHIERS  29 

to  extend  the  time  of  payment  of  a  note  belonging  to  the  bank, 
even  if  it  results  in  the  release  of  a  surety.  Such  a  transaction 
would  be  merely  the  exchange  of  one  form  of  security  for  an- 
other. 

MAKING    REPRESENTATIONS    CONTRADICTORY    OF    NOTES 

In  an  action  by  a  bank  upon  a  note  against  joint  and  sev- 
eral makers,  the  Supreme  Court  of  Oklahoma  holds,  in  Colbert 
vs.  First  National  Bank  of  Ardmore,  133  Pacific  Reporter,  206, 
that  one  of  the  makers  cannot  show,  for  the  purpose  of  escaping 
liability,  a  contemporaneous  oral  agreement  that  he  signed  the 
note  upon  the  representation  of  the  bank's  cashier  that  security 
taken  upon  real  estate  at  the  time  of  the  execution  of  the  note 
would  be  sufficient  to  pay  the  note,  and  that  he  would  not  be 
personally  bound  by  the  note,  and  would  not  be  called  upon  to 
pay  it,  because  such  statement  contradicts  the  written  promise 
of  the  note  and  violates  the  rule  that  oral  testimony  is  inadmis- 
sible to  vary  or  contradict  the  terms  of  a  written  contract. 

TAKING  WRONG   RENEWAL   NOTE 

After  certain  notes  on  which  a  company  and  some  of  its 
directors  were  liable  had  become  due,  the  cashier  of  the  bank 
holding  the  notes  agreed  to  take  a  renewal  note,  for  the  full 
amount,  to  be  signed  by  the  company  and  indorsed  by  the  di- 
rectors, or  some  of  them,  and  sent  a  form  of  note  to  be  executed, 
which  was  thereafter  changed  so  as  to  bind  only  the  company. 
The  note  was  taken  to  the  bank  by  one  of  the  directors,  who  was 
in  a  hurry  to  catch  a  train  and  did  not  call  the  cashier's  attention 
to  the  change,  and  the  cashier,  after  having  glanced  hurriedly  at 
the  signatures,  surrendered  the  old  notes,  not  discovering  the  true 
character  of  the  new  one  for  several  weeks. 

The  Supreme  Court  of  Arkansas  holds,  Frazier  vs.  State 
Bank  of  Decatur,  141  Southwestern  Reporter,  941,  that  the  bank 
was  entitled  to  rescind  the  contract  of  renewal  and  to  maintain 
an  action  on  the  original,  surrendered  notes. 

The  court  says  that  the  question  of  negligence  on  the  part 
of  the  cashier  in  accepting  the  new  note  and  surrendering  the 
old  ones  without  examining  the  former  was  not  involved  in  the 
case,  for  the  reason  that  there  was  no  evidence  to  the  effect  that 
the  makers  or  indorsers  of  the  old  notes  were  injured  thereby. 

CHANGING  DATE  OF  NOTE 

At  common  law,  the  alteration  of  the  date  of  a  promissory 
note  is  a  material  alteration ;  and  when  made  by  one  not  a 
stranger  to  the  obligation  will  render  it  void  as  to  all  parties  not 


30  BANK    CASHIERS 

consenting  to  the  change.  Furthermore,  the  Court  of  Errors  and 
Appeals  of  New  Jersey  holds,  in  Bodine  vs.  Berg,  82  Atlantic 
Reporter,  901,  that  when  the  cashier  or  general  manager  of  a 
bank  accepts  for  the  bank  a  promissory  note,  payable  to  its  or- 
der, with  surety,  in  the  place  of  one  then  held  without  surety,  at 
the  same  time  surrendering  the  unsecured  note  to  its  maker,  and 
as  a  part  of  the  transaction  of  acceptance  alters  the  date  of  the 
new  note  to  correspond  with  that  of  the  note  surrendered,  the 
bank  is  chargeable  with  the  act  of  its  officer  as  one  done  in  the 
course  of  the  business  of  the  bank  by  a  general  agent,  and  it 
cannot,  as  to  the  nonconsenting  obligors,  rely  upon  the  altered 
note  as  evidence  of  the  indebtedness,  and  at  the  same  time  dis- 
avow the  act  of  its  officer  and  agent  and  claim  his  action  to  be 
that  of  a  stranger,  or  beyond  his  authority.  The  bank  is  charge- 
able with  its  general  manager's  knowledge  of  the  fact  that  it  holds 
a  note  which  has  been  altered  by  him,  and  if,  with  this  knowl- 
edge, it  accepts  payment  on  account  of  the  note,  and  subse- 
quently assigns  the  note  as  altered,  such  acts  amount  to  a  ratifi- 
cation of  the  act  of  the  manager  in  altering  the  note. 

EFFECT  OF  FILLING  OUT  NOTE  WITHOUT  AUTHORITY 

A  bank  taking  from  the  payee  a  note  left  blank  as  to  amount, 
date  and  time  when  due,  but  which  its  cashier  subsequently  fills 
out,  the  Appellate  Court  of  Illinois  holds,  is  not  a  holder  in  due 
course,  within  the  meaning  of  the  negotiable  instruments  law, 
where  it  fails  to  show  that  its  cashier  had  authority  of  any  kind 
from  the  maker  of  the  note  to  so  fill  out  the  note. 

IDENTIFICATION   OF    PAPER 

On  the  matter  of  identification  of  paper,  it  may  be  noted 
that  in  a  case  where  a  bank  was  burglarized  and  it  was  desired 
to  identify  a  draft  which  had  been  sold  to  the  defendant  on  the 
preceding  afternoon,  the  Supreme  Court  of  Nebraska  holds 
that  an  identification  was  sufficient  where  the  cashier  of  the 
bank  testified  that  she  sold  a  draft  to  the  defendant  at  the  bank 
shortly  before  the  burglary  and  that  the  draft  which  she  pro- 
duced at  the  trial  was  in  her  handwriting,  and  was  the  one  which 
she  sold  to  the  defendant. 

WHEN     MISREPRESENTATIONS    BIND    BANK 

The  cashier's  office  does  not  carry  with  it  authority  for  its 
occupant,  the  Supreme  Court  of  Nebraska  says,  to  make  fraud- 
ulent representations.  But  if  such  representations  are  made  by 
a  cashier  while  he  is  acting  for  his  bank  and  for  its  benefit,  it 
cannot  escape  responsibility,  while  retaining  the  fruits  of  his 
unlawful  conduct. 


BANK    CASHIERS  31 

CANNOT   PRESENT    NOTES   BY  TELEPHONE 

The  Court  of  Appeals  of  New  York,  reversing  the  decisions 
of  lower  courts,  holds  that  no  proper  presentment  of  a  note  was 
made  where  the  cashier  of  a  bank  called  up  by  telephone  the 
maker  of  the  note  at  his  place  of  residence  about  two  miles  dis- 
tant from  the  bank  and  stated  to  him  that  the  bank  held  the 
note,  even  assuming  that  the  further  conversation  between  the 
parties  was  sufficient  to  establish  a  demand  for  payment  and 
refusal  or  statement  of  inability  on  the  part  of  the  maker  to 
comply  with  the  demand. 


GIVING  TELEPHONIC  ADVICES  AS  TO  CHECKS 

In  a  Kansas  case  a  depositor  of  a  check  for  $250,  who  had 
received  credit  therefor  subject  to  check,  drew  his  check  for 
$150  on  the  bank  in  favor  of  a  firm  to  pay  for  a  diamond  ring 
which  he  desired  to  purchase  of  them.  A  member  of  the  firm 
communicated  with  the  bank  by  telephone,  informing  the  cashier 
of  the  pending  transaction,  and  asked  if  the  check  was  good. 
The  cashier  replied  that  the  man  had  on  deposit  sufficient  funds 
to  meet  the  check,  that  the  check  was  good,  and  that  it  would 
be  all  right  to  let  him  have  the  ring.  Relying  on  what  the  cashier 
said,  the  firm  sold  the  ring  and  took  the  check  in  payment  of 
the  price.  The  bank  then  discovered  that  the  check  for  which 
it  had  given  the  man  credit  was  fraudulent,  and,  when  the  firm 
presented  their  check,  refused  payment.  Thereupon  the  firm 
sued  the  bank  for  the  amount  of  their  check,  setting  up  all  the 
facts,  but  the  Supreme  Court  of  Kansas  holds,  in  Rambo  vs. 
First  State  Bank,  128  Pacific  Reporter,  182,  that  no  cause  of 
action  was  presented  so  that  a  demurrer  to  their  petition  was 
properly  sustained  because,  under  the  negotiable  instruments 
act,  the  drawee  of  a  bill  is  not  obligated  to  pay  the  holder  until 
he  accepts  the  bill,  which  acceptance  must  be  in  writing  and 
signed  by  the  drawee. 

In  an  Oregon  case  two  checks  payable  to  a  national  bank, 
drawn  on  a  bank  in  another  town,  were  marked  "O.  K.  by 
Tschirgi,  Cashier."  This  was  done  by  the  cashier  of  the  national 
bank,  who  testified  that  he  called  Mr.  Tschirgi,  the  cashier  of 
the  other  bank,  up  on  the  telephone,  and,  as  a  result  of  their  con- 
versation, advised  Mr.  Tschirgi  that  he  would  mark  the  checks 
O.  K.  by  him  and  send  them  for  clearance,  to  which  Mr.  Tschirgi 
replied,  "All  right."  The  Supreme  Court  of  Oregon  holds,  in 
United  States  National  Bank  of  Vale  vs.  First  Trust  &  Savings 
Bank  of  Brogan,  119  Pacific  Reporter,  343,  that  this  did  not  con- 
stitute an  acceptance  of  the  checks,  as  the  negotiable  instruments 
law  requires  that  the  acceptance  of  a  bill  must  be  in  writing  and 


32  BANK     CASHIERS 

signed  by  the  drawee.  It  also  says  that  Mr.  Tschirgi,  as  cashier, 
was  the  agent  of  his  bank,  and  the  general  rule  is  that  an  agent 
in  whom  trust  or  confidence  is  reposed,  or  who  is  required  to 
exercise  judgment,  may  not  intrust  the  performance  of  his  duties 
to  another.  Besides,  it  was  incompatible  for  the  cashier  of  the 
national  bank  to  act  as  agent  of  the  other  bank  in  accepting  the 
checks  in  question. 


POWER   WHEN    NOTARY   TO   TAKE   ACKNOWLEDGMENTS 

Where  a  cashier  is  also  a  notary  public  the  question  arises 
as  to  his  power  to  take  acknowledgments  of  mortgages,  etc.,  in 
which  the  bank  may  be  financially  interested.  Of  course,  he  can 
take  acknowledgments  of  documents  between  third  parties.  But 
when  it  comes  to  taking  them  where  the  bank  is  directly  inter- 
ested, his  power,  or  the  efifect,  is  very  doubtful. 

There  are  not  many  decisions  on  this  subject — hardly  enough 
to  clear  it  of  practical  uncertainty.  Probably,  too,  as  in  most 
other  matters,  the  courts  of  different  states  would  take  different 
views  of  it,  on  account  of  different  statutes  and  perhaps  pecul- 
iarities of  different  cases,  as  well  as  a  conflict  of  views  as  to 
whether  the  taking  of  an  acknowledgment  is  a  ministerial  or 
judicial  act.  Indeed,  the  Supreme  Court  of  Nebraska  says  that 
what  relationship  or  what  interest  possessed  by  an  officer  dis- 
qualifies him  from  taking  an  acknowledgment  must  be  determined 
from  the  facts  and  circumstances  of  the  case  in  which  the  ques- 
tion is  presented,  rather  than  by  any  general  rule. 

In  another  case  that  court  tells  us  that  it  is  the  established 
law  of  many  of  the  states  that  where  the  officer  taking  an  ac- 
knowledgment of  a  mortgage  has  a  direct  pecuniary  or  beneficial 
interest  in  obtaining  the  same,  he  is  disqualified  thereby,  and  the 
acknowledgment  is  void. 

That  rule  would  seem  to  make  the  test  to  be  more  as  to 
being  a  stockholder  in  the  bank  than  being  cashier.  In  fact,  the 
case  before  the  court  and  its  decision  suggest  the  distinction,  for 
the  court  holds  specifically  that  a  cashier,  or  assistant  cashier,  who 
was  also  a  director  and  stockholder  of  a  national  bank,  was  dis- 
qualified, as  a  notary  public,  from  taking  acknowledgment  of  a 
mortgage  given  to  secure  a  note  made  up,  in  amount,  of  $325.45 
due  the  bank,  and  $490  account  of  a  note  held  for  collection, 
due  another  bank  in  which  the  national  bank  was  a  large  stock- 
holder ;  and  that  the  mortgage  was  void  for  want  of  a  legal  ac- 
knowledgment. 

THE  CONTROLLING  PRINCIPLE 

The  power  of  a  cashier  to  take  an  acknowledgment  appears 


BANK    CASHIERS  33 

therefore  to  be  determined,  not  by  any  rule  with  reference  to 
him  in  particular,  but  by  the  general  principle  that  a  person  is 
disqualified  from  taking  an  acknowledgment  as  a  notary  public 
or  other  official  authorized  to  take  acknowledgments  whenever  he 
is  a  party  to,  or  pecuniarily  interested  in,  the  conveyance. 

DIFFERENT  VIEWS 

A  different  result,  however,  was  reached  in  May,  1910,  by 
the  Supreme  Court  of  Colorado.  The  contest  was  between  a 
man  named  Babbitt  and  a  bank  as  to  the  priority  of  chattel  mort- 
gage liens  held  respectively  by  them  on  the  same  property.  The 
bank  held  a  mortgage  prior  in  date  to  that  held  by  Babbitt,  but 
the  acknowledgment  of  the  bank  mortgage  was  taken  before  a 
notary  who  was  at  the  time  the  cashier,  a  stockholder  in  and  a 
director  of  the  bank  corporation.  Because  of  this.  Babbitt  con- 
tended that  the  acknowledgment  was  no  acknowledgment,  and 
therefore  that  the  bank's  mortgage  was  not  entitled  to  record, 
was  a  void  instrument  and  created  no  lien. 

The  court  decided  the  case  in  favor  of  the  bank,  but  ap- 
parently largely  on  the  ground  that  the  taking  of  the  acknowledg- 
ment was  a  ministerial,  and  not  a  judicial  act,  as  the  taking  of 
an  acknowledgment  is  held  to  be  in  some  other  states.  It  fol- 
lows that  the  decision  might  not  be  approved  in  some  states,  and 
a  different  decision  might  be  rendered  on  an  otherwise  quite 
similar  statement  of  facts.  In  any  case,  it  would  seem  better  to 
let  some  one  else  take  the  acknowledgment  where  the  bank  is  a 
party,  or  pecuniarily  interested,  especially  if  the  cashier  is  a  stock- 
holder. 

WHEN  THE  INSTRUMENT  IS  FAIR  ON  ITS  FACE 

In  holding  that  the  bank's  mortgage,  as  acknowledged  and 
certified,  was  entitled  to  record,  and  that  the  record  was  con- 
structive notice  to  Babbitt,  the  court  says  that  it  was  to  be  ob- 
served that  on  its  face  the  mortgage  was  fair  and  entitled  to 
record. 

The  taking  of  this  acknowledgment,  unlike  that  of  a  married 
woman,  where  separate  examination  is  required,  was  purely  min- 
isterial. The  alleged  infirmity  was  a  matter  outside  the  record, 
that  might  not  be  taken  advantage  of  except  for  fraud.  If  there 
was  fraud  in  fact,  of  which  there  was  no  intimation,  it  should 
have  been  averred  and  proven. 

In  the  absence  of  such  averment  and  proof,  the  record  of 
the  mortgage  must  be  held  to  have  been  constructive  notice  to 
Babbitt.  To  say  otherwise  would  be  to  overturn  the  purpose  of 
the  law  providing  for  this  notice.     Such  a  policy  would  destroy 


34  BANK    CASHIERS 

the  reliability  of  records,  and  lead  to  mischievous  dissensions, 
rather  than  to  the  stability  and  security  of  property  rights. 

Likewise,  the  Supreme  Court  of  Minnesota  has  said,  where 
the  acknowledgment  of  a  chattel  mortgage  given  to  a  bank  was 
taken  before  a  notary  public  who  was  shown  to  have  been  a 
stockholder  and  also  cashier  of  the  bank,  that,  undoubtedly,  the 
policy  of  the  law  forbids  that  an  acknowledgment  should  be  taken 
before  a  party  to  a  deed  or  mortgage,  or  one  who  takes  an  in- 
terest under  it,  whether  as  grantee,  mortgagee,  partner,  or  trus- 
tee; and,  when  such  an  interest  appears  on  the  face  of  the  in- 
strument, the  record  will  disclose  the  infirmity,  and  third  parties 
can  take  advantage  of  it. 

However,  the  question  was  not  really  involved  in  this  case, 
for  the  mortgage  was  valid  under  the  Minnesota  law,  as  between 
the  parties  to  it  without  an  acknowledgment;  and,  as  to  a  sub- 
sequent mortgagee,  the  record  was  notice  because  an  instrument 
so  acknowledged,  not  disclosing  the  alleged  disqualification  of 
the  notary,  would  be  entitled  to  record  and  be  notice  to  him,  so 
that  he  would  be  bound  by  it. 

NOT    AUTHORIZED    TO    DEAL    WITH    LEASES 

Although  the  cashier  is  regarded  in  a  manner  as  the  ex- 
ecutive officer  of  a  bank,  it  is  held  in  a  Missouri  case  that  this 
pertains  only  to  the  current  business  of  such  institutions  with 
respect  to  their  financial  aflfairs,  such  as  deposits,  discounts, 
exchange,  etc.,  and  he  is  without  implied  authority,  as  a  matter 
of  law,  to  either  lease  the  bank's  premises,  accept  the  surrender 
of  a  leasehold  term,  or  lease  premises  of  others  for  it. 

CANNOT  ACT  FOR  BANK  AS  ADMINISTRATOR 

Where  a  right  to  be  appointed  administrator  of  an  estate 
is,  under  certain  circumstances,  given  by  statute  to  creditors,  it 
is  held  in  the  Indiana  case  of  Reed  vs.  Bishop,  97  Northeastern 
Reporter,  1023,  a  cashier  of  a  bank  cannot  be  appointed  admin- 
istrator just  because  the  bank  is  a  creditor;  for,  if  the  bank 
cannot  act,  its  representative  or  agent  will  have  no  more  au- 
thority to  do  so.  :^:^.; 

FAILING  TO   MAKE  RETURN   TO   ASSESSOR 

The  failure  of  a  bank  to  file  its  statement  with  the  assessor, 
whatever  may  be  its  motive,  the  Court  of  Appeals  of  Kentucky 
holds,  in  Caldwell  vs.  First  National  Bank,  152  Southwestern 
Reporter,  757,  does  not  invalidate  the  assessment  of  the  board 
of  supervisors,  if  it  is  a  substantial  compliance  with  the  law, 
so  as  to  make  a  case  of  omitted  property ;  but  a  cashier's  reason 


BANK    CASHIERS  35 

for  not  making  the  statutory  return  that  he  is  not  willing  to 
swear  to  the  market  value  of  the  stock  is  not  sufficient  reason 
for  his  failure  to  comply  with  the  statute. 

GENERAL   PERSONAL   LIABILITIES 

A  bank  sued  the  administratrix  of  the  estate  of  a  deceased 
cashier,  asking  an  accounting  and  foreclosure  of  a  claimed  lien 
on  the  stock  in  the  bank  and  deposit  of  such  cashier.  The  com- 
plaint sought  to  make  the  cashier,  or  rather  his  estate,  liable  for 
many  financial  losses  the  bank  had  sustained  during  his  seven 
years'  administration.  All  the  affairs  of  the  bank,  covering  that 
period,  were  gone  into,  and  where  the  bank  was  found  to  have 
suffered  any  loss,  and  this  cashier  had  had  any  connection  with 
it,  it  was  sought  to  charge  his  estate  therewith. 

The  bank  obtained  a  decree  in  its  favor  for  $20,347.71,  with 
a  declared  lien  upon  the  cashier's  stock  and  deposit.  But  that 
decree  was,  in  1910,  reversed  by  the  Supreme  Court  of  Aabama, 
which  holds  that  the  stockholders,  directors,  and  officers  of  the 
bank  must  be  presumed  to  have  known  of  and  consented  to  the 
cashier's  course  or  management  of  the  affairs  of  the  bank,  and, 
in  allowing  it  for  seven  years,  profiting  by  it — receiving  the  re- 
sults and  profits  during  all  that  time  without  a  whisper  of  com- 
plaint or  offer  to  change  it — must  be  presumed  to  have  ratified  it. 

The  bill  of  complaint  the  court  says  contained  equity  in  so 
far  as  it  sought  to  charge  the  administratrix  for  an  accounting 
as  to  the  funds  or  property  of  the  bank,  acquired  by  the  cashier 
as  the  bank's  agent  or  trustee,  whether  by  breach  of  contract, 
express  or  implied,  or  whether  by  breach  of  duty  or  trust  grow- 
ing out  of  such  contractural  relation,  though  it  amounted  to  a 
tort  (wrongful  act).  But  it  was  without  equity  in  so  far  as  it 
sought  to  recover  of  the  administratrix,  a  personal  representa- 
tive, or  to  fix  a  liability  upon  the  estate  of  the  cashier,  as  for 
damages  founded  solely  upon  a  tort  of  the  cashier,  and  in  conse- 
quence of  which  his  estate  was  not  benefited. 

The  bill  was  also  without  equity,  in  so  far  as  it  attempted 
to  have  the  court  declare  and  enforce  a  lien  against  the  deposit 
of  the  cashier  in  its  bank. 

RESPONSIBILITY   FOR   LOSSES  AND   DAMAGES 

It  is  true  that  the  cashier  of  a  bank  is  responsible  to  the 
bank  for  all  losses  it  suffers  directly  from  his  failure  in  any 
respect  in  his  official  duty,  and  that  it  cannot  avail  him  that  he 
was  so  ordered,  or  so  authorized,  to  act,  by  the  directors,  if  the 
directors  had  no  authority  to  so  order  or  direct  him,  or  to  do  the 
acts  themselves  which  they  authorized  him  to  do,  and  he  knew 


36  BANK    CASHIERS 

or  ought  to  have  known  that  the  acts  done  or  authorized  were  un- 
lawful. 

The  cashier  is  likewise  liable  to  the  bank  for  all  damages  it 
suffers  on  account  of  any  wrongful  official  acts  of  his,  from  any 
unauthorized  assumption  of  power  on  his  part,  or  from  his  fail- 
ure to  obey  any  proper  and  valid  instructions  from  his  superior 
officers  in  the  bank. 

But  a  bank,  like  any  other  corporation,  can  act  only  by  and 
through  its  officers  and  agents,  and,  if  the  directors  themselves 
can  do  an  act,  so  far  as  they  or  the  bank  is  concerned,  they  can 
authorize  the  cashier  to  do  it;  and  if  he  does  it  under  their  au- 
thority, he  is  not  liable  to  them  or  to  the  bank,  though  he  might 
be  in  some  cases  liable  to  third  parties. 

ERRORS  AND  IMPROPER  ACTS  OF  SUBORDINATES 

The  cashier  is  not  liable,  as  the  directors  are,  for  the  errors 
or  improper  acts  of  his  subordinate  officers  such  as  tellers,  book- 
keepers, etc.,  or  agents  in  the  bank.  He  is  not  liable  to  the  bank 
as  their  principal.  He  must  have  in  some  way  contributed  to 
the  wrongful  acts  of  the  subordinates  to  render  him  liable  there- 
for. He  is  not  required  to  examine  and  supervise  their  every 
act;  but,  as  to  their  acts,  only  to  use  such  care  and  diligence  as 
an  ordinary  man  would  exercise  in  his  own  business  affairs. 

COMPARED  TO  A  TRUSTEE 

A  cashier  is  not  a  trustee  in  the  strict  sense  of  the  word, 
though  he  is  a  quasi  (sort  of)  trustee.  In  his  dealings  with  the 
public  he  is  the  agent  of  the  bank ;  but  as  to  the  bank  he  is  held 
like  a  trustee.  Yet  if  he  wrongfully  acquires  the  funds  of  the 
bank,  and  invests  them  in  his  own  name,  the  bank  cannot  fasten 
a  trust  or  lien  upon  the  property,  as  in  the  case  of  a  real  trustee. 
The  acquisition  of  the  funds  being  wrong,  the  trust  does  not 
exist.  However,  his  official  relation  to  the  bank  renders  him 
liable  to  an  accounting  to  the  bank  in  a  court  of  equity. 

BASIS  OF  LIABILITY 

The  cashier  is  liable  to  the  bank  only  for  losses  occasioned 
by  his  lack  of,  or  failure  to  exercise,  reasonable  care  and  dil- 
igence, and  not  for  losses  the  result  of  mere  errors  of  judgment. 

He  is  liable  for  losses  the  result  of  negligence  or  fraud,  but 
not  for  his  dereliction  or  fault  when  there  is  no  loss  in  conse- 
quence thereof.  ^-  '  '^ '  ^ 

If  the  directors  place  upon  the  cashier  the  duty  of  carrying 
on  the  business  of  the  bank,  and  they,  as  a  body,  or  the  commit- 
tees thereof,  fail  to  hold  meetings,  or  to  instruct,  direct,  or  help. 


BANK    CASHIERS  37 

and  supervise  him,  absenting  themselves  from  the  bank  and  its 
business  and  thus  putting  the  whole  burden  upon  him,  neither 
they  nor  the  bank  can  hold  him  responsible  for  not  consulting 
with  them,  as  required  by  the  by-laws  of  the  bank,  as  to  dis- 
counts and  loans,  though  the  stockholders  might  hold  him  and 
the  directors. 

IMPROPER    LOANS,    DISCOUNTS,    OVERDRAFTS 

Where  the  whole  duty  and  responsibility  of  carrying  on  the 
banking  business  has  been  intentionally  or  negligently  imposed 
upon  the  cashier,  he  will  be  liable  to  the  bank  for  improper 
loans,  discounts,  or  overdrafts,  where  he  fails  to  make  reason- 
able inquiry  into  the  financial  standing  of  those  making  the  over- 
drafts, loans  or  discounts,  or  knowingly  or  negligently  fails  to 
take  proper  security. 

NOT  AN  INSURER 

But  the  cashier  is  not  an  insurer  against  loss  in  such  cases, 
and  is  not  liable  merely  because  he  did  not  conform  to  the  by- 
laws of  the  bank,  unless  negligent  or  inexcusable  in  not  so  con- 
forming. 

The  directors  of  a  bank  have  the  power  to  allow  overdrafts, 
and  they  can  authorize  the  cashier  to  allow  them,  and  if  he  allows 
them  without  their  authority  they  can  ratify  them.  They  can 
ratify  whatever  they  can  do  in  the  first  instance;  and  they  will 
be  held  to  a  ratification  of  his  acts  where  they  impose  upon  him 
a  duty  which  they  should  perform,  and  fail  to  object  to  his 
course  of  business  when  they  know,  or  could  easily  know,  all 
the  facts.  They  cannot,  by  neglecting  to  perform  any  duties, 
and  imposing  all  on  the  cashier,  make  him  an  absolute  insurer 
of  the  bank  against  all  loss,  merely  because,  in  order  to  carry  on 
the  business  of  the  bank  successfully,  he  must  ignore  or  fail  to 
observe  the  by-laws,  or  fail  to  confer  with  them. 

Nor  is  the  cashier  absolutely  liable  for  an  overdraft,  if  the 
nature  of  the  transaction  is  such  that  it  is  really  a  loan  on  suf- 
ficient surety. 

BY-LAW  LIABILITY 

Where  a  by-law,  whose  terms  the  cashier  knew,  provided 
that  he  should  be  "responsible  for  all  moneys,  funds,  and  val- 
uables of  the  "bank,"  the  Supreme  Court  of  Wisconsin  holds  that 
the  by-law  became  a  part  of  his  contract  and  indicated  unmis- 
takably the  intent  of  the  corporation  to  place  the  whole  respon- 
sibility for  the  safe  conduct  of  the  bank's  business  upon  the 
shoulders  of  the  cashier,  whether  the  actual  transactions  should 
be  carried  on  by  him  or  by  his  subordinates. 


38  BANK    CASHIERS 

Whether  the  cashier  was  made  an  insurer,  so  that  he  would 
have  to  replace  funds  destroyed  by  fire  or  taken  by  robbery,  the 
court  says  was  a  question  not  involved  in  the  case  before  it,  and 
hence  is  not  decided.  But  the  court  is  fully  satisfied  that  the 
language  was  intended  to,  and  did,  fairly  cover  losses  resulting 
from  mistakes  or  malfeasance  of  the  cashier  or  his  subordinates. 


MISSING  MONEY 

More  particularly,  the  court  holds  that  where  the  books  of 
the  bank  showed  that  a  certain  sum  of  money  had  been  received 
by  the  bank  which  had  never  been  accounted  for  in  the  cash, 
that,  in  the  absence  of  explanation,  was  prima  facie  proof  that 
moneys  of  the  bank  to  that  extent  were  missing,  and  that  the 
cashier  was  liable  therefor,  and  this  notwithstanding  that  on 
other  and  different  occasions  there  was  more  cash  in  the  drawer 
than  the  books  called  for,  because  unknown  customers  rather 
than  the  cashier  must  be  entitled  to  credit  for  the  surplus. 


A  cashier  of  a  bank  signed,  with  the  word  "Cashier"  fol- 
lowing his  name,  a  writing  stating,  "I.  O.  U.  one  thousand  dol- 
lars on  completion  of  sale"  of  certain  described  lots.  The  Dis- 
trict Court  of  Appeals,  Second  District,  California,  holds  that 
the  written  contract  or  memorandum  in  the  form  of  an  "I.  O. 
U."  could  not  be  said  to  evidence  a  contract  of  the  bank  when 
it  was  examined  alone  and  for  what  it  showed  upon  its  face. 

Where  in  the  body  of  an  instrument  no  words  appear  which 
serve  to  define  the  agreement  as  being  made  on  behalf  of  a  party 
other  than  he  whose  signature  is  attached  thereto,  it  will  not 
be  deemed  to  be  the  contract  of  another  party,  even  though  there 
may  appear,  after  the  appended  signature  of  the  individual,  qual- 
ifying or  descriptive  words,  such  as  "President,"  "Secretary,"  or, 
as  here,  "Cashier."  But  in  such  cases  oral  proof  is  admissible 
to  identify  the  party  against  whom  the  obligation  is  legally  charge- 
able. 

Moreover,  the  fact  that  the  "I.  O.  U."  was  written  upon 
the  back  or  reverse  side  of  a  blank  check  of  the  bank  was  of  no 
significance  as  evidence  to  the  point  that  the  cashier  intended  to 
contract  on  behalf  of  the  bank  and  not  on  his  own  behalf. 

RECEIVING   AND   RECEIPTING   FOR   DEPOSITS. 

The  receipt  by  the  cashier  or  teller  of  an  individual  banker, 
the  Supreme  Court  of  Nevada  says,  in  Eureka  County  Bank 
Habeas  Corpus  Cases,  126  Pacific  Reporter,  655,  would  be  the 


BANK    CASHIERS  39 

receipt  by  the  banker  in  his  absence,  and  the  same  would  be  true 
in  regard  to  a  partnership.  It  might  be  said  that  any  one  of  the 
partners  in  a  banking  business  would  have  the  right  to  control 
and  manage  the  business,  the  same  as  any  partner  in  any  other 
business ;  and  that  the  partner  who  did  not  prevent  the  reception 
of  a  deposit,  when  he  knew  it  was  being  received  by  the 
cashier  or  teller,  would  be  assenting  to  the  reception  of  the  de- 
posit. But  in  the  case  of  a  banking  corporation  the  receipt  by 
the  cashier,  or  teller,  is  the  receipt  by  the  corporation,  and  not 
for  the  cashier  or  teller  or  for  an  officer  of  the  bank. 

A  receipt  written  by  the  cashier  of  a  bank,  stating  expressly 
that  a  certain  amount  of  money  has  been  received  "for  safe- 
keeping," the  Supreme  Judicial  Court  of  Maine  holds,  in  Fogg 
vs.  Tyler,  82  Atlantic  Reporter,  1008,  tends  to  prove  a  special 
deposit. 

CARE  OF  SPECIAL  DEPOSITS 

Ordinarily  the  cashier  is  guardian  of  gratuitous  special  de- 
posits of  papers  for  safekeeping,  as  well  as  of  the  securities  and 
moneys  of  the  bank,  but,  if  the  bank  has  selected  him  with  due 
regard  to  the  interests  entrusted  to  him,  and  has  not  retained 
him  under  circumstances  condemning  it  for  lack  of  common  pru- 
dence in  so  doing,  the  risk  of  the  deposit  being  lost  through  his 
defalcation,  the  Supreme  Court  of  Iowa  holds,  is  that  of  the  de- 
positor. 

BANKRUPTCY  OF  CASHIER  PARTNER  IN  BANK 

The  president  and  the  cashier  of  a  private  bank  were  equal 
partners  therein.  The  cashier  was  permitted  to  manage  the  bank 
and  certain  other  business  of  the  firm  as  he  chose,  the  result  being 
a  considerable  loss.  Afterward  the  president  sued  the  cashier 
for  the  loss,  alleging  fraud  and  mismanagement  while  acting  as 
partner  in  a  fiduciary  capacity  or  relation. 

The  cashier  pleaded  a  discharge  in  bankruptcy. 

The  president,  who  had  notice  of  the  bankruptcy  proceed- 
ings, but  filed  no  claim  therein,  relied  on  section  17  of  the  bank- 
ruptcy act,  which  provides  that  a  discharge  shall  release  a  bank- 
rupt from  all  his  provable  debts,  except  those  which  were  created 
by  his  fraud,  embezzlement,  misappropriation,  or  defalcation 
while  acting  as  an  officer  or  in  any  fiduciary  capacity. 

However,  it  is  said  that  partners  and  bankers,  like  agents, 
factors,  and  commissionmen,  do  not  usually  act  in  a  fiduciary 
capacity,  and  the  Supreme  Court  of  Kansas  holds,  in  Inge  vs. 
Stillwell,  127  Pacific  Reporter,  527,  that  the  cashier's  discharge 
in  bankruptcy  was  a  good  defense,  the  relation  between  partners, 


40  BANK    CASHIERS 

under  the  circumstances  indicated,  not  being  the  fiduciary  rela- 
tion referred  to  in  section  17  of  the  bankruptcy  act. 

The  court  says  that  the  president,  according  to  his  own 
theory,  paid  practically  no  attention  to  the  affairs  of  the  bank, 
and,  in  the  absence  of  a  finding  of  fraud,  that  section  of  the 
bankruptcy  act  could  not  be  applied;  and,  even  if  his  theory  be 
taken  that  the  loss  was  occasioned  by  the  fraudulent  conduct  and 
mismanagement  of  the  cashier,  the  fiduciary  relationship  required 
by  the  statute  did  not,  according  to  the  authorities,  appear  to 
have  existed. 

The  president  voluntarily  entered  into  the  partnership  and 
permitted  its  affairs  to  be  conducted  by  the  cashier  as  he  chose, 
and,  had  his  peculiar  methods  resulted  in  a  gain,  one-half  thereof 
would  have  inured  to  the  benefit  of  the  president,  and,  by  the 
same  rule,  one-half  the  loss  should  fall  on  him  by  reason  of  the 
partnership  relation,  and  not  from  any  fiduciary  consideration. 


RESPONSIBILITY   FOR    FALSE   REPORTS 

The  principal  question  in  the  case  of  State  vs.  Cutts,  133  Pa- 
cific Reporter,  115,  was  whether  or  not  a  cashier  of  a  state  bank, 
who  merely  signs  a  false  report  which  has  been  prepared  in  full 
in  typewritten  form,  except  the  signature,  by  others  of  their 
own  volition  and  not  under  his  supervision,  can  be  legally  con- 
victed for  the  making  of  such  report.  The  Supreme  Court  of 
Idaho  holds  that  he  can  be,  under  the  Idaho  statute ;  that  a  cashier 
who  signs  such  a  report  and  delivers  it  to  another  person  makes 
the  report  in  contemplation  of  the  statute. 

Where  a  cashier  of  a  state  bank  signs  a  paper  purporting  to 
show  the  condition  of  such  bank,  knowing  what  it  contains,  he 
knowingly  makes  such  report,  and  should  be  held  responsible  for 
the  truth  of  the  statements  therein,  unless  he  was  himself  deceived 
through  no  fault  or  negligence  on  his  part. 

It  is  not  sufficient  for  a  cashier  of  a  state  bank  to  offer  as 
a  defense  to  the  making  of  a  false  report  that  he  signed  it  at  the 
request  of  a  superior  officer,  without  any  actual  knowledge  as  to 
the  truth  of  the  statements  made  in  such  report,  and  without 
making  any  investigation  himself  to  determine  whether  or  not 
such  statements  were  true.  Every  person  is  responsible  to  the 
law  for  the  rectitude  of  his  own  acts,  and  it  is  no  defense  to 
plead  that  a  criminal  statute  was  violated  at  the  request  of  an- 
other, even  under  tempting  circumstances. 

CHARGEABLE   WITH    KNOWLEDGE   OF   BOOKS 

The  cashier  of  a  bank,  a  United  States  Circuit  Court  of  Ap- 


BANK    CASHIERS  41 

peals  holds,  in  Pearce  vs.  United  States,  192  Federal  Reporter, 
561,  is  chargeable  as  such  with  knowledge  of  the  books  of  the 
bank. 

And,  in  the  above  Idaho  case,  the  court  holds  that,  while  the 
defendant  in  that  case  objected  to  the  admission  of  the  books  of 
the  bank  of  which  he  was  cashier  because  no  foundation  was 
laid  as  to  their  accuracy,  their  admission  was  not  error,  especially 
inasmuch  as  it  appeared  to  be  clearly  established  that  the  de- 
fendant participated  in  the  keeping  of  the  books  admitted,  was 
an  executive  officer  of  the  bank  of  which  the  books  formed  a 
part,  and  was  acquainted  with  their  contents  to  a  considerable 
extent. 

ADMISSIBILITY   OF   TESTIMONY   BASED  ON    BOOKS 

In  a  suit  brought  in  North  Carolina  by  the  Washington 
Horse  Exchange  against  the  firm  of  Wilson  &  McCoy,  an  attach- 
ment was  levied  on  the  proceeds  of  a  draft,  which  a  Terre  Haute, 
Ind.,  bank  came  in  and  claimed.  The  cashier  of  the  bank  testified 
that  the  draft  had  been  purchased  for  value  by  it  and  was  its 
property.  On  cross  examination  he  admitted  that  he  had  no  per- 
sonal knowledge  of  the  transaction,  but  stated  that  he  had  charge 
of  the  books  of  the  bank ;  had  examined  them ;  that  they  showed 
that  the  bank  had  discounted  the  draft  on  a  certain  date  and  for- 
warded it  for  collection,  the  proceeds  being  credited  to  the  draw- 
ers, and  that  the  bank  had  never  been  reimbursed.  It  was  con- 
tended that  the  cashier's  evidence  was  incompetent,  and  that  the 
books  were  the  only  competent  evidence,  but  the  Supreme  Court 
of  North  Carolina  holds  otherwise,  affirming  a  judgment  in 
favor  of  the  bank.  It  takes  into  consideration,  too,  that  the  books 
were  in  another  state,  beyond  the  jurisdiction  of  the  court,  and 
could  not  well  be  introduced  in  evidence  without  stopping  the 
business  of  the  bank. 


RIGHTS   ON   ASSUMING   OVERDRAFT 

The  drilling  of  an  oil  well  for  a  company  was  conducted  in 
the  name  of  a  Mrs.  Mahoney,  whose  uncle,  of  the  name  of  Mentz, 
was  the  treasurer  of  the  company  and  the  cashier  of  a  bank.  An 
account  was  opened  upon  the  books  of  the  bank  in  the  name  of 
Mrs.  Mahoney.  It  began  with  an  overdraft,  and  ended  with  one 
of  something  like  $5,101.39,  to  cover  which  Mentz  executed  his 
note  for  that  amount  to  the  bank.  That  note  the  bank  placed 
to  the  credit  of  the  Mahoney  overdrawn  account. 

The  Court  of  Appeals  of  Kentucky  holds,  in  Mentz's  As- 
signee vs.  Mahoney,  150  Southwestern  Reporter,  503,  that  when 
the  bank  discovered  that  its  agent  had  paid  out  its  money  for 


42  BANK    CASHIERS 

Mrs.  Mahoney  without  authority,  it  had  the  right  to  ratify  the 
act  of  its  agent,  and  look  to  her  for  the  money. 

It  had  also  a  right  to  look  to  its  agent  for  the  money,  and 
refuse  to  have  anything  to  do  with  Mrs.  Mahoney. 

Its  conduct  was  an  election  to  follow  the  latter  course,  for  it 
squared  up  the  Mahoney  account  on  the  books  and  took  the  note 
of  Mentz  for  its  debt.  The  note,  therefore,  operated  as  a  pay- 
ment to  the  bank  of  the  debt. 

Mentz  was  thereafter  the  debtor  of  the  bank,  and  Mrs.  Ma- 
honey was  his  debtor,  for  her  account  at  the  bank  had  been 
squared.  If  the  bank  did  not  get  its  money  out  of  Mentz,  it  had 
no  claim,  later,  against  Mrs.  Mahoney.  Mentz  could  sue  her  for 
the  amount  which  he  allowed  her  to  overdraw  at  the  bank,  al- 
though he  had  not,  in  fact,  paid  the  note. 

It  was  not  material  that  the  money  was  lent  in  small  sums 
from  time  to  time,  and  not  all  at  once  in  one  sum.  Nor  was  it 
material  that  Mentz,  instead  of  taking  Mrs.  Mahoney's  note,  had 
charged  the  money  to  her  account  in  the  bank,  and  had  carried 
it  as  an  overdraft  without  the  knowledge  of  the  officials  of  the 
bank  who  had  charge  of  such  matters. 

If  the  cashier  of  a  country  bank  has  to  allow  small  tempo- 
rary overdrafts  by  customers,  such  an  overdraft  as  this  one  can- 
not be  presumed  to  be  within  the  authority  of  a  bank  cashier. 

The  bank  having  elected  then  to  treat  Mentz  as  its  debtor 
and  refused  to  treat  Mrs.  Mahoney  as  its  debtor,  it  was  not  mate- 
rial that  it  had  turned  out  that  Mentz  was  insolvent. 

Nor  could  it  be  said  that  Mentz  was  a  mere  volunteer.  He 
was  liable  to  the  bank  for  the  money  which  he  had  allowed  Mrs. 
Mahoney  to  overdraw  without  authority.  Being  liable  to  the 
bank,  he  had  a  right  to  protect  himself  and  his  sureties  by  adjust- 
ing the  matter  with  the  bank.  In  so  doing  he  was  not  a  volunteer, 
but  was  discharging  an  obligation  which  he  owed. 


MAY    RECOVER    FROM    CUSTOMER    FOR    OVERPAYMENT 

A  cashier  of  a  bank,  who  also  acted  as  bookkeeper,  by  a  mis- 
take in  bookkeeping  caused  a  customer  of  the  bank  to  be  credited 
with  $200  to  which  he  was  not  entitled.  The  mistake  in  entry 
also  caused  a  shortage  in  cash  to  appear.  The  cashier,  insisting 
that  some  mistake  had  been  made,  but  being  unable  to  explain 
the  matter  satisfactorily,  paid  the  bank  the  $200,  and  the  bank, 
on  the  faith  of  the  false  entry,  delivered  to  the  customer  two 
shares  of  stock,  of  the  value  of  $200.  The  Court  of  Appeals  of 
Georgia  holds  that,  in  an  action  in  the  nature  of  an  action  for 
money  had  and  received,  the  cashier  might  recover  the  $200  of 
the  customer,  who  took  the  benefit  of  the  cashier's  payment  of 


BANK    CASHIERS  ^ 

that  sum  to  the  bank.  The  court  says  that  the  customer  ou^ht 
not  to  keep  the  stock  without  paying  for  it,  and  that  the  cashier 
was  the  one  he  ought  to  pay. 

COMMUNICATIONS   NOT  SPECIALLY   PRIVILEGED 

Cashiers  of  banks,  although  frequently  asked  for  reports  on 
the  character  and  financial  ability  of  customers  and  others  of 
whom  they  may  be  expected  to  have  special  knowledge,  have  no 
special  protection  beyond  that  afforded  by  the  general  law  of 
privileged  communications,  which  permits  the  making  in  good 
faith  of  defamatory  statements  about  another  when  made  in 
answer  to  an  inquiry  by  a  person  having  an  interest  deemed  to 
entitle  him  to  the  information. 

In  a  Kentcuky  case  the  holder  of  a  note  to  collect  it  gave  it 
to  a  firm  of  bankers  who  sent  it  through  one  bank  to  another 
bank,  the  cashier  of  which,  having  presented  it  for  payment,  re- 
turned it  through  the  bank  from  which  received  with  an  indorse- 
ment on  it  reading :    "Never  signed  a  note ;  fraud,  forgery,"  etc. 

It  is  held  that  the  cashier  making  such  notation  was  not 
liable  for  libel,  as  his  communication  was  made  as  corresponding 
agent  and  was  privileged.  The  court  says  that  under  the  custom 
of  bankers  in  that  state  it  was  his  duty,  as  cashier,  to  report  rea- 
sons for  nonpayment,  and  he  made  the  report  to  the  parties  to 
whom  he  was  under  obligation  to  make  it.  The  corresponding 
duty  was  upon  the  firm  which  received  the  note  from  the  holder 
to  inform  their  customer  of  the  reasons  which  the  payor  of  the 
note  gave  for  its  nonpayment. 

ENFORCEABLE  DISCLOSURES 

In  a  Kansas  case  decided  in  1904,  a  cashier  of  a  bank  had 
been  called  before  a  grand  jury  and  asked  what  amount  of 
money  a  certain  customer  of  the  bank  had  on  deposit  on  March 
1,  1903,  the  grand  jury  being  engaged  in  an  inquiry  into  whether 
or  not  such  customer  had  on  that  date  committed  perjury  in  list- 
ing his  personal  property  for  taxation.  The  cashier  denied  the 
authority  of  the  grand  jury  to  require  any  officer  of  the  bank  to 
make  a  disclosure  of  such  matters,  and  refused  to  disclose  any 
matters  pertaining  to  the  business  relations  of  the  bank  and  its 
customers  and  patrons  for  the  reason  that  the  making  of  such 
disclosures  would  be  destructive  of  the  bank's  property  and  its 
assets,  and  would  destroy  public  confidence  in  the  bank,  and  for 
the  further  reason  that  all  such  matters  were  privileged  com- 
munications, and  that  he  had  no  right  or  authority  in  law  to  dis- 
close the  relations  that  were  thus  privileged,  etc. 

When,  however,  counsel  for  the  cashier  argued  before  the 


44  BANK    CASHIERS 

Supreme  Court  of  Kansas  that  the  matter  concerning  which  the 
cashier  was  interrogated  was  privileged,  and  that  to  require  a 
disclosure  by  a  banker  of  the  amount  standing  to  a  depositor's 
credit  on  the  bank  books  would  be  against  public  policy,  he  had 
to  admit  that  he  had  found  no  adjudicated  case  which  sustained 
his  position. 

The  decision  of  the  court  in  the  case  is  that  it  is  not  against 
public  policy  to  require  a  banker  to  disclose  the  amount  of  a 
depositor's  balance;  that  the  transactions  between  a  banker  and 
depositor  are  not  privileged  or  confidential,  in  a  legal  sense.  The 
relation  of  debtor  and  creditor  exists,  the  court  says,  between  a 
bank  and  depositor.  The  ordinary  debtor  would  hardly  stop  to 
assert  a  privilege  in  his  behalf  to  protect  himself  from  disclos- 
ing the  amount  owing  by  him  to  another. 

CONSTRUCTION   OF  CERTIFICATE  FOR  BOND 

Certain  renewal  bonds  for  a  cashier  of  a  bank  were  each 
made  Upon  a  certificate  by  the  employer  which  stated  that  just 
prior  thereto  the  books  and  accounts  of  the  cashier  "were  exam- 
ined and  found  correct  in  every  respect  and  all  moneys  accounted 
for.'*  The  Supreme  Court  of  the  United  States  holds,  in  Title 
Guaranty  &  Surety  Co.  vs.  Nichols,  32  Supreme  Court  Reporter, 
475,  that  the  certificate  was  not  to  be  taken  as  a  warranty  of  the 
correctness  of  the  accounts.  The  mere  fact  that  the  examina- 
tion, if  made  by  a  reasonably  competent  person,  failed  to  dis- 
cover discrepancies  covered  up  by  false  entries,  or  other  book- 
keeping devices,  would  not  defeat  the  renewal. 

CONSTRUCTION   OF  BONDS 

The  bond  of  a  cashier  of  a  bank  signed  by  a  surety  company, 
the  Supreme  Court  of  Indiana  holds,  in  United  States  Fidelity 
&  Guaranty  Co.  vs.  Poetker,  102  Northeastern  Reporter,  372, 
must  be  deemed  to  be  an  official  bond  within  the  meaning  of  the 
statute,  and  the  company's  liability  on  it  must  be  measured  by 
the  breach  of  the  simple  condition  that  the  cashier  will  honestly 
and  faithfully  discharge  his  duty  as  cashier  of  the  bank  during  his 
continuance  in  office,  rather  than  according  to  the  numerous  and 
intricate  provisions  and  conditions  that  may  be  contained  in  the 
bond  and  the  written  application  for  it. 

Indemnity  bonds  given  for  a  money  consideration  and  hav- 
ing all  the  essential  features  of  insurance  contracts,  the  Supreme 
Court  of  Wisconsin  holds,  in  First  National  Bank  of  Crandon 
vs.  United  States  Fidelity  &  Guaranty  Co.  of  Baltimore,  137 
Northwestern  Reporter,  742,  are  not  to  be  construed  according 
to  the  rules  applicable  to  the  ordinary  accommodation  surety,  and 


BANK    CASHIERS  45 

such  a  bond  given  on  an  assistant  cashier  of  a  bank  is  not  in- 
validated by  his  promotion  to  cashier,  when  the  bond  itself  au- 
thorizes transfers  from  one  position  to  another,  and  the  change 
was  one  in  name  only,  not  affecting  the  character  of  the  work 
done. 

But  a  policy  of  fidelity  insurance  issued  on  an  assistant 
cashier  of  a  bank  owning  five  shares  of  its  stock,  the  Supreme 
Court  of  South  Dakota  holds,  does  not  cover  his  acts  after  ac- 
quiring a  majority  of  the  stock  and  becoming  cashier. 


II.     BANK  PRESIDENTS 

Bank  presidents,  or  such  a  number  of  them,  have  of  recent 
years  extended  their  official  activities  so  much  that  the  courts, 
or  some  of  them,  have  begun  to  accord  to  them  corresponding 
powers,  and  to  hold  them  to  correspondingly  increased  obliga- 
tions, when  the  circumstances  seemed  to  require  it. 

The  president's  authority  in  bank  management  has  been  held 
to  be  exceeded  by  that  of  the  cashier,  while  the  Supreme  Court 
of  Kansas  has  said  that,  in  the  usual  division  of  duties,  to  the 
president  it  belongs  to  represent  the  bank  in  its  collateral  busi- 
ness relations.  But  this  is  being  gradually  changed  by  the  en- 
largement of  the  president's  functions  and  powers. 

This  gives  increased  importance  to  much  that  has  been 
hereinbefore  set  down  as  having  been  decided  with  reference 
to  the  powers  and  duties  of  bank  cashiers,  for  when  the  presi- 
dent is  given  the  duties,  or  sufficiently  long  exercises  functions 
previously  attributed  to  the  cashier,  that  is,  in  whole  or  in  part 
becomes  the  chief  executive  of  the  financial  department,  he 
should  be  held  to  the  same  rules  therein. 

TWO  COURTS  ON  CHANGES  IN  DUTIES  AND  POWERS 

In  a  case  wherein  it  sustains  the  validity  of  an  assignment 
of  a  note  by  the  president  of  a  bank,  the  California  Court  of 
Appeal  says  that,  under  the  usages  and  customs  of  modern 
banking,  the  president  of  a  bank  is  no  longer  regarded  as  an 
ornamental  magnet  with  which  to  attract  deposits,  but,  on  the 
contrary,  is  now,  and  has  been  for  several  years,  recognized  as 
the  executive  head  and  most  important  agent  in  connection  with 
banking  operations.  The  reason  for  the  rule  that  through  bank- 
ing usage  the  president's  power  must  be  limited  to  transactions 
expressly  authorized  by  the  board  of  directors  no  longer  ob- 
tains, and  the  rule  should  cease. 

A  bank  president,  the  Supreme  Court  of  North  Dakota  says, 
in  McCarty  vs.  Kepreta,  139  Northwestern  Reporter,  992,  cannot 
lend  his  name,  and  thereby  the  influence  of  his  probity  and  wealth, 
to  his  resultant  benefit  as  a  stockholder  and  bank  official,  with- 
out incurring  the  duty  of  fulfillment  of  the  obligations  of  the 
office. 

There  is  no  longer  any  essential  difference  in  the  authority 
exercised  by  cashier  and  president. 


BANK  PRESIDENTS  M 

AMPLENESS  OF  AUTHORITY 

Where  the  board  of  directors  of  a  national  bank  has  by  reso- 
lution expressly  authorized,  or  for  a  reasonable  length  of  time 
permitted,  the  president  of  the  bank  to  participate  in  the  actual 
management  of  its  daily  business  affairs,  the  United  States  Cir- 
cuit Court  of  Appeals,  Eighth  Circuit,  holds,  in  Rankin  vs.  Ty- 
gard,  198  Federal  Reporter,  795,  that  his  authority  to  discount 
commercial  paper  and  to  do  other  acts  within  the  scope  of  the 
authority  of  its  other  ministerial  officers  is  ample. 

A  bank  that  accepts  a  note  as  a  result  of  a  transaction  in 
which  its  president  represents  it,  the  Court  of  Civil  Appeals  of 
Texas  holds,  in  First  State  Bank  of  Teague  vs.  Hare,  152  South- 
western Reporter,  501,  will  be  precluded  from  denying  that  he 
was  its  agent  and  had  authority  to  represent  it. 

There  is  some  very  respectable  authority,  too,  a  United 
States  Circuit  Court  says,  for  the  proposition  that  a  bank  presi- 
dent has  at  least  an  implied  power  to  initiate  litigation  and  em- 
ploy counsel,  although  the  decisions  on  this  point  are  by  no 
means  uniform. 

It  is  not  legally  necessary,  the  Supreme  Court  of  Iowa  holds, 
in  Ida  County  Savings  Bank  vs.  Johnston,  136  Northwestern 
Reporter,  225,  that  the  authority  of  the  president  of  a  bank  to 
make  a  contract  for  the  sale  of  land  it  has  acquired  by  fore- 
closure, or  the  ratification  thereof,  should  appear  of  record  on  the 
books  of  the  bank,  if  there  is  in  fact  an  authorization  or  ratifica- 
tion by  the  board  of  directors. 


RESTRICTIONS   ON    OFFICE   AND   POWERS 

Subject  to  the  free  exercise  by  its  board  of  directors  of  its 
power  to  remove  him  at  its  pleasure  at  any  time,  the  United 
States  Circuit  Court  of  Appeals,  Eighth  Circuit,  holds,  in  Rankin 
vs.  Tygard,  198  Federal  Reporter,  795,  that  a  national  bank  may, 
by  its  articles  of  incorporation  and  by-laws,  fix  the  term  of  office 
of  its  president,  or  of  any  other  ministerial  officer,  and  the  term 
so  fixed  becomes  his  legal  term  of  office,  although  during  that 
term  he  is  subject  to  recall  by  the  board  under  section  5136  of 
the  revised  statutes  of  the  United  States.  Furthermore,  the 
board  of  directors  of  a  national  bank  may  by  a  by-law  restrict 
its  choice  of  a  president  to  its  own  members,  even  if  others  are 
eligible  under  the  national  banking  law. 

The  rule  that  the  president  of  a  corporation,  by  virtue  of 
his  office,  has  no  implied  power  to  sell  or  mortgage  property  of 
the  corporation,  the  Supreme  Court  of  Alabama  says,  in  Mont- 
gomery Bank  &  Trust  Co.  vs.  Walker,  61  Southern  Reporter, 


48  BANK  PRESIDENTS 

951,  applies  to  the  presidents  of  banks  as  well  as  to  the  presi- 
dents of  other  corporations,  who  have  no  authority  other  than 
what  is  expressly  granted  by  the  charter,  by-laws,  etc. 

A  Missouri  case  holds  that,  although  the  president  of  a 
bank  or  other  corporation  may  perform  the  duties  incident  to 
the  trust  reposed  in  him,  including  such  as  custom  or  necessity 
has  imposed  upon  his  office,  without  express  authority,  he  is 
without  implied  power  as  a  matter  of  law  either  to  lease  the 
corporation's  real  estate  or  to  cancel  leases  it  has  outstanding 
with  respect  thereto,  or  to  enter  into  new  ones  for  it  as  lessee. 

SUBSEQUENT  EXPLANATIONS 

The  general  rule  that  an  agent  may  not  bind  his  principal 
by  declarations  which  are  merely  historical,  and  which  have 
no  connection  with  any  transaction  then  being  conducted  by  him 
with  authority  for  his  principal,  the  Court  of  Appeals  of  New 
York  applies  in  State  Bank  of  Brocton  vs.  Brocton  Fruit  Juice 
Co.,  102  Northeastern  Reporter,  591,  an  action  brought  by  a 
bank  to  foreclose  a  mortgage  on  real  estate,  wherein  it  holds 
that  declarations  of  the  president  of  the  bank  (who  represented 
it  in  accepting  and  dealing  with  the  mortgage),  made  after  the 
mortgage  had  been  placed  on  record,  explaining  why  it  had  been 
withheld  from  record  for  a  while,  were  erroneously  admitted  in 
evidence,  the  president  at  the  time  of  making  the  statements 
not  being  engaged  in  behalf  of  the  bank  in  any  transaction  with 
which  the  statements  were  connected,  or  to  which  they  were 
pertinent. 


JOINING  BANK  IN  MORTGAGE  TO  RELEASE  LIEN 

A  bank  which  needed  cash,  having  a  purchase  money  lien 
against  certain  property  for  $8,000  evidenced  by  two  notes  of  one 
Williams  for  $4,000  each,  had  Williams  apply  to  an  insurance 
company  for  a  mortgage  loan  of  $4,000,  which  was  to  pay  off 
one  of  the  notes.  The  bank  united  in  the  mortgage  for  the 
purpose  of  releasing  its  lien  on  the  property  securing  the  $4,000 
note  to  be  paid  off,  and  for  the  purpose  of  subordinating  to  the 
company's  lien  its  lien  to  secure  the  other  note.  The  mortgage 
was  signed  and  acknowledged  by  the  bank,  by  its  president,  and 
its  corporate  seal  was  affixed  thereto. 

The  Court  of  Appeals  of  Kentucky  holds,  in  Citizens'  Life 
Insurance  Co.  vs.  Pedley,  Receiver  of  the  Owensboro  Savings 
Bank  &  Trust  Co.,  150  Southwestern  Reporter,  26,  that,  inasmuch 
as  the  bank's  president  was  not  only  such  in  name,  but  was,  in 
fact,  its  chief  executive  officer,  who  attended  to  the  making  of 
loans,  the  execution  of  deeds  and  mortgages,  and  releasing  liens, 


BANK  PRESIDENTS  49 

all  of  which  was  done  for  a  number  of  years  with  the  knowledge 
and  acquiesence  of  the  bank  and  its  directors,  he  had  full  author- 
ity to  unite  the  bank  with  Williams  in  the  execution  of  the  mort- 
gage referred  to,  as  well  as  full  authority  to  act  for  the  bank 
with  reference  to  all  other  matters  connected  with  the  trans- 
action. 

If,  upon  ascertaining  that  there  were  additional  expenses 
and  additional  taxes  that  must  be  paid  from  the  loan,  and  the 
evidence  clearly  showed  that  both  the  president  and  the  cashier 
of  the  bank  knew  of  these  items,  the  bank  did  not  desire  to  re- 
lease its  lien  to  that  extent,  it  should  have  refused  to  carry  out 
the  transaction.  It  could  not  accept  and  retain  the  proceeds  of 
the  mortgage  and  at  the  same  time  repudiate  the  agreement  under 
which  the  proceeds  were  paid. 

DRAWING  DRAFT  AT  DISTANT  PLACE 

The  president  of  a  Washington  bank,  who  was  authorized 
to  sign  its  drafts,  drew  one  on  its  New  York  correspondent,  dated 
at  Billings,  O.  T.,  in  1902,  for  $6,000.  The  draft  was  paid  in 
due  course,  and  the  question  was  presented  whether,  when  such 
a  draft,  though  fraudulent  in  its  inception,  is  presented  for  pay- 
ment through  the  ordinary  banking  channels,  the  bank  on  which 
it  is  drawn,  if  wholly  ignorant  of  the  fraud,  is  liable  if  it  pays 
the  draft.  The  United  States  Circuit  Court  of  Appeals,  Second 
Circuit,  holds,  in  First  National  Bank  of  Mt.  Vernon,  Wash.,  vs. 
National  Park  Bank  of  New  York,  192  Federal  Reporter,  546, 
that  it  is  not  liable.  To  render  it  liable  it  must  know  of  the 
fraud,  or  the  circumstances  must  be  such  as  to  put  it  upon  in- 
quiry. I'  -f^-*:! 

The  fact  that  the  draft  in  question  was  upon  a  blank  for  the 
use  of  the  customers  of  the  Billings  bank  and  the  fact  that  it 
was  apparently  drawn  at  Billings  were  perfectly  compatible  with 
honesty,  as  it  is  easy  to  imagine  many  situations  where  such  a 
draft  would  be  necessary  and  proper,  as,  for  example,  in  the  case 
of  the  president  being  sent  to  settle  a  controversy  or  to  purchase 
property  for  his  bank. 

NOTICE   TO   PRESIDENT  AS   NOTICE  TO  BANK 

Included  in  the  obligations  of  the  office  of  bank  president, 
the  Supreme  Court  of  North  Dakota  holds,  are  those  arising 
from  the  presumed  notice  imputed  to  him  by  law  as  a  bank 
official  of  the  bank's  transactions  in  the  ordinary  course  of  its 
dealings. 

As  the  presiding  officer  of  the  board  of  directors,  he  should 
not  be  heard  to  say  he  did  not  know  matters  presumed  to  be 


50  BANK  PRESIDENTS 

within  the  actual  knowledge  of  the  board  as  an  excuse  for  failure 
to  perform  his  official  duties  to  the  bank,  its  depositors  and 
creditors. 

And,  as  there  is  no  longer  any  essential  difference  in  the 
authority  exercised  by  cashier  and  president,  what  the  cashier 
knows  the  institution  and  its  president  in  law  know. 

WHEN  PRESIDENT  THE  ONE  TO  HAVE  NOTICE 

Where  the  president  of  a  bank  acted  for  it  in  the  purchase 
of  a  note,  and,  in  an  action  by  the  bank  on  the  note,  testified 
that  at  the  time  of  the  purchase  he  did  not  know  of  any  defects 
in  the  making  of  the  note,  the  District  Court  of  Appeal  of  Cali- 
fornia holds,  in  Citizens'  Bank  vs.  Stewart,  133  Pacific  Reporter, 
337,  that  it  could  not  be  said  that  the  bank  had  notice. 

The  bank  could  have  no  notice  except  through  some  of  its 
officers. 

The  officer  to  whom  such  notice  should  and  would  probably 
be  given,  was  the  one  authorized  to  represent  the  bank  in  the 
purchase  of  the  note. 

Or,  if  any  other  officer  had  notice  of  any  equity  of  the 
maker  of  the  note,  it  was  reasonable  to  infer  that  he  would  im- 
mediately communicate  it  to  the  president. 

It  was  therefore  fair  to  say  that  the  president's  statement 
was  sufficient  evidence  that  the  bank  had  no  notice  of  any  in- 
firmity in  the  note. 

WHEN  KNOWLEDGE  NOT  IMPUTABLE  TO  BANK 

Of  course,  the  Supreme  Court  of  North  Dakota  adds  to 
what  has  been  quoted  from  it,  where  manifestly  the  president, 
cashier,  or  director,  the  presumed  agent  of  the  bank,  the  prin- 
cipal, is  acting  for  his  own  interests,  and  from  the  nature  of 
the  transaction  adversely  to  those  of  the  bank,  or  in  fraud  of  the 
bank,  for  his  own  personal  gain,  or  for  that  of  others  with  notice 
thereof,  in  a  suit  by  the  bank  or  for  its  benefit,  a  different  rule 
applies. 

So,  according  to  the  Supreme  Court  of  Appeals  of  Virginia, 
it  was  not  to  be  held  that  the  fraud  or  knowledge  of  its  presi- 
dent would  prevent  a  bank  from  collecting  notes  discounted  for 
a  loan  of  $4,500,  assuming  that,  in  perpetrating  a  fraud  upon  the 
makers,  the  president  told  them,  as  an  inducement  to  get  them 
to  go  into  his  fraudulent  scheme,  that  the  bank  would  let  them 
have  $4,500  and  not  require  them  to  pay  it  back  until  he  sold 
certain  stock  for  them  and  from  the  proceeds  of  the  sale  paid 
off  the  notes — that  is,  if  the  stock  was  never  sold  by  the  presi- 
dent, then  this  money  was  never  to  be  paid  back. 


BANK  PRESIDENTS  51 

Furthermore,  it  is  held  in  the  California  case  of  Cooke  vs. 
Mesmer,  128  Pacific  Reporter,  917,  that  a  bank  is  not  bound  by 
information  its  president  had  with  regard  to  note^  taken  by 
him  for  the  bank  as  collateral  security  when  the  information 
referred  to  was  acquired  before  he  became  president  of  the  bank 
and  was  not  in  his  mind  when  he  represented  the  bank. 


OTHER  EXAMPLES 

A  bank  is  not  chargeable  with  the  knowledge  of  its  presi- 
dent, nor  liable  for  his  misapplication  of  trust  funds  coming  into 
his  hands  and  deposited  in  the  bank  without  anything  to  charge 
it  with  notice  of  their  character. 

So  practically  holds  the  Supreme  Court  of  Arkansas  in  Bank 
of  Hartford  vs.  McDonald,  154  Southwestern  Reporter,  512,  a 
suit  on  a  note  for  $2,141.66  which  its  president  and  two  other 
parties  gave  to  it  for  a  loan  to  be  used  in  the  purchase  of  prop- 
erty for  them  on  shares  to  be  handled  by  the  president  for  them. 

The  court  holds  that  the  bank  could  neither  be  charged  with 
its  president's  knowledge,  nor  be  required  to  perform  his  agree- 
ments. 

In  this  transaction  he  was  a  stranger  to  the  bank,  although 
its  president ;  for  the  law  does  not  allow  the  president  of  a  bank 
to  make  contracts  with  himself,  against  the  interest  of  the  bank, 
so  as  to  bind  the  bank,  because  the  weakness  of  human  nature 
and  the  probability  of  the  agent  giving  himself  the  advantage  of 
the  bargain  is  recognized. 

As  the  bank  did  not  participate,  and  was  not  a  beneficiary,  in 
any  misappropriation,  it  did  not  come  within  the  rule  that  if  a 
bank  learns  that  a  trustee  is  committing  a  breach  of  trust  by  an 
improper  withdrawal  of  funds,  or  participates  in  the  fraud,  it 
is  liable,  and  where  a  deposit  of  trust  funds  is  made  by  a  trustee 
in  his  own  name,  with  the  knowledge  of  the  depositing  bank  that 
such  deposit  is  wrongful,  the  bank  is  liable  upon  the  trustee's 
withdrawing  and  converting  the  funds. 

The  Supreme  Court  of  the  United  States  holds  in  American 
National  Bank  of  Nashville  vs.  Miller,  Agent  of  the  First  Na- 
tional Bank  of  Macon,  33  Supreme  Court  Reporter,  883,  that 
where  an  insolvent  president  of  a  bank  gave  to  it,  on  account  of 
an  indebtedness  due  by  him  to  it,  a  check  on  another  bank,  in 
which  he  carried  an  account,  and  to  which  he  was  also  indebted, 
notice  of  its  president's  insolvency  was  not  to  be  imputed  to  the 
bank  to  which  he  gave  the  check,  on  the  ground  that  what  he 
knew  the  bank  must  be  considered  as  knowing. 

If,  within  the  scope  of  his  office,  he  had  knowledge  of  a 
fact  which  it  was  his  duty  to  declare,  and  not  to  his  interest  to 


52  BANK  PRESIDENTS 

conceal,  then  his  knowledge  would  be  treated  as  that  of  the  bank, 
for  then  he  would  be  presumed  to  have  done  what  he  ought  to 
have  done,  and  to  have  actually  given  the  information  to  his  prin- 
cipal. 

But  the  fact  of  his  own  insolvency  and  of  his  personal  in- 
debtedness to  the  bank  on  which  he  gave  the  check  being  matters 
which  it  was  to  his  interest  to  conceal,  the  law  would  not,  by  a 
fiction,  charge  the  bank  of  which  he  was  president  with  notice 
of  facts  which  he  not  only  did  not  disclose,  but  which  he  was 
interested  in  concealing. 


AS  PURCHASER  OF  NOTE  FROM  BANK 

In  the  case  of  McCarty  vs.  Kepreta,  139  Northwestern  Re- 
porter, 992,  where  the  president  of  a  state  bank,  who  was  also 
one  of  the  directors  of  the  bank,  bought  from  it  a  note  before  its 
maturity,  paying  full  value  for  it  to  the  bank,  which  by  its 
cashier  indorsed  it  to  the  president  as  his  individual  property, 
the  Supreme  Court  of  North  Dakota  holds  that  a  defense  of 
want  of  consideration,  available  to  a  maker  as  against  a  state 
bank  as  payee  of  a  negotiable  instrument,  may  be  asserted  as  a 
defense  in  an  action  brought  by  the  bank  president  against  the 
maker,  without  proof  of  actual  notice  had  by  such  president 
of  the  fact  that  the  note  was  given  without  consideration,  and 
this  without  regard  to  the  good  faith  of  the  bank  president  in 
his  purchase  of  the  instrument. 

The  cashier's  actual  knowledge  of  the  infirmity  in  the  in- 
strument, of  its  being  without  consideration,  the  law  conclu- 
sively presumed  to  have  been  communicated  in  due  course  to, 
and  to  have  been  had  by,  the  board  of  directors,  when  no  interest 
hostile  to  the  bank  or  in  fraud  of  its  stockholders  or  depositors 
was  asserted ;  and  such  presumed  actual  knowledge  in  its  directors 
was  presumed  to  have  been  had  by  the  president  of  the  bank 
as  such  at  the  time  he  purchased  the  negotiable  instrument  of 
the  bank,  acting  by  its  cashier.  Whatever  knowledge  he,  as  a 
director  and  officer  of  the  bank,  at  such  a  time  had  or  ought  to 
have  possessed  as  an  official,  he  would  be  conclusively  presumed 
in  law  to  have  had  as  a  private  individual. 

Proof  of  neglect  of  duty  owing  by  the  president  to  the  bank, 
its  stockholders  and  depositors,  and  persons  dealing  therewith, 
by  proof  of  failure  of  the  president  and  director  to  participate 
in  the  active  management  of  the  bank,  and  the  consequent  igno- 
rance of  the  facts  of  the  transaction  in  question,  did  not  relieve 
such  official  from  the  knowledge  presumed  in  him,  and  was  im- 
material on  the  question  of  his  good  faith  in  the  purchase  of 
such  negotiable  instrument. 


BANK  PRESIDENTS  S3 

The  law  governing  banking  and  defining  the  liability  of  di- 
rectors and  managing  officers  in  such  institutions  conclusively 
negatives  the  claim  that  such  a  managing  officer  can  be,  as  be- 
tween himself  and  the  bank,  or  between  hiniself  and  third  per- 
sons, a  holder  in  due  course,  when  his  bank  is  not,  or  cannot  be, 
such  a  holder. 

SELLING  TO   BANK   NOTES   FROM    REALTY   BUSINESS 

In  a  Minnesota  case  the  president  of  a  national  bank  en- 
gaged in  a  joint  land  transaction  with  one  Persall,  who  agreed 
to  furnish  the  money  for  a  required  cash  payment  by  having 
his  note  for  $1,600  discounted  at  the  bank.  The  president,  who 
was  the  owner  of  a  majority  of  the  stock  of  the  bank  and  also  a 
member  of  its  discount  committee,  sold  the  note  to  the  bank,  but 
apparently  failed  to  use  the  proceeds  as  agreed. 

In  a  suit  by  the  bank  on  the  note,  wherein  is  affirmed  a 
judgment  in  favor  of  the  bank,  the  Supreme  Court  of  Minnesota 
holds  that,  in  negotiating  the  note,  the  president  was  acting  for 
Persall  and  himself  jointly,  and  the  bank  was  not  chargeable 
with  knowledge  of  any  facts  known  only  to  the  president. 

The  proceeds  of  the  note  having  been  placed  to  the  presi- 
dent's credit,  and  drawn  against  by  him,  the  bank  was  a  bona 
fide  holder  of  the  note,  as  a  purchaser,  for  a  valuable  considera- 
tion in  the  regular  course  of  business,  and  it  was  not  required 
to  take  any  steps  to  insure  the  proper  application  by  the  president 
of  the  proceeds. 

On  the  other  hand,  the  Supreme  Court  of  South  Dakota 
holds,  in  First  National  Bank  vs.  Harvey,  137  Northwestern  Re- 
porter, 365,  that,  where  the  president  of  a  bank  was  also  engaged 
in  the  real  estate  business,  and  took  a  note  which  the  bank  claimed 
to  have  purchased  from  him  in  due  course  of  banking  business, 
the  ends  of  justice  should  not  be  defeated  by  permitting  him  to 
divide  himself  into  two  beings,  one  as  manager  and  owner  of 
the  land  business,  and  the  other  as  president,  director,  chairman 
of  the  discount  committee,  and  general  manager  of  the  bank, 
and  then  say  that  one  part  of  him  had  no  knowledge  or  notice 
of  what  the  other  part  of  him  knew  or  did.  Whatever  knowledge 
he  possessed  of  the  origin  of  the  note  must  be  imputed  to  the 
bank. 

TRANSFERRING  TO  BANK  NOTE  TAKEN  BY  SELF 

A  note  for  $7,500,  dated  June  20,  1907,  was  made  payable 
one  year  after  its  date  to  the  order  of  one  Dennis,  who  was 
president  of  a  bank.  August  1,  1907,  he  transferred  the  note  to 
the  bank.     The  evidence  showed  that  he  conducted  the  affairs 


54  BANK  PRESIDENTS 

of  the  bank.  There  had  been  no  meeting  of  the  directors  during 
the  year  1907.  The  cashier  followed  the  directions  of  the  presi- 
dent. His  testimony  with  reference  to  the  transfer  of  the  note 
was  that  Dennis  came  into  the  bank,  told  him  to  make  certain 
book  entries  with  respect  to  this  note  and  other  papers,  handed 
him  the  papers,  and  then  told  him  to  make  certain  other  entries 
"on  the  other  side"  of  his  book.  These  instructions  were  fol- 
lowed. 

The  Supreme  Court  of  California  holds,  in  McKenney  vs. 
Ellsworth,  132  Pacific  Reporter,  75,  that,  on  this  testimony,  the 
jury  were  certainly  justified  in  concluding  that  the  cashier  was 
not,  on  behalf  of  the  bank,  purchasing  the  note  from  Dennis, 
but  that  he  was  merely  obeying  the  orders  of  Dennis,  who  oc- 
cupied the  dual  position  of  seller  of  the  note  and  of  agent  who 
was  consummating  the  purchase  on  behalf  of  the  bank.  The 
evidence  fully  authorized  a  finding  that  the  bank  took  the  note 
with  notice  of  every  fact  known  to  Dennis. 

BANK   LIABLE   FOR   NOTES   SOLD  BY   PRESIDENT 

The  Supreme  Court  of  Iowa,  in  Benton  County  Savings 
Bank  vs.  First  National  Bank,  140  Northwestern  Reporter,  811, 
holds  the  national  bank  liable  for  forged  or  misrepresented  notes 
sold  by  its  president  notwithstanding  that  it  denied  all  liability 
on  any  of  the  notes  for  the  alleged  reasons  that  the  entire  trans- 
action was  with  its  president  personally,  and  not  with  the  bank; 
that  it  had  no  notice  or  knowledge  of  his  negotiations  of  the 
notes,  and  it  had  no  authority  as  a  national  bank  to  indorse, 
guarantee,  or  in  any  manner  become  responsible  upon  his  notes 
and  papers. 

The  court  mentions  as  important  points  that  the  defendant's 
representative  was  not  personally  acquainted  with  any  of  the 
officers  or  directors  of  the  plaintiff  bank,  that  the  correspondence 
was  begun  by  a  letter  signed  by  him  as  president;  that,  until  he 
left  the  defendant  bank,  all  his  correspondence  was  upon  its 
letter  heads;  that,  as  a  rule  subject  to  very  few  exceptions,  he 
signed  his  letters  as  president  of  the  bank;  that,  as  a  rule,  the 
amount  paid  by  the  plaintiff  for  the  notes  was  passed  to  the 
credit  of  the  defendant  bank  through  its  correspondent  in  Chi- 
cago and  thereafter  passed  by  the  president  to  his  personal  credit 
upon  the  books  of  the  defendant  bank  without  knowledge  of  the 
plaintiff  or  any  of  its  officers,  and  that  it  was  his  custom  to 
handle  bank  paper  in  the  manner  that  he  did  in  this  case. 

It  was  true,  too,  that  the  notes  did  not  have  any  bank 
number,  but  that  was  by  no  means  controlling,  although  a  cir- 
cumstance to  be  considered  with  others  in  arriving  at  the  truth. 


BANK  PRESIDENTS  55 

GETTING  NOTE  TO   MAKE  PROPER  BALANCE 

A  discrepancy  having  been  discovered  in  the  amount  of  the 
bills  receivable  of  a  bank,  the  president  of  the  bank,  who  made 
most  of  the  loans  and  transacted  practically  all  of  the  business 
for  and  on  behalf  of  the  bank,  and  whose  authority  to  so  act 
was  acquiesced  in  and  ratified  by  the  board  of  directors,  got  a 
personal  friend,  who  had  been  doing  considerable  business  with 
the  bank,  to  execute  a  note  for  $3,500  to  the  bank,  assuring  him 
that  he  wanted  to  place  it  in  the  bank  temporarily,  and  that  when 
it  became  due  the  bank  would  cancel  and  return  the  note  to  him. 

The  note  was  not  carried  on  the  books  of  the  bank  in  any 
form,  as  an  asset  thereof,  until  after  there  was  a  new  cashier, 
who  claimed  to  have  found  other  items  of  indebtedness  due 
by  the  maker  of  the  note,  in  consequence  of  which  the  president 
got  a  renewal  note  for  $4,800,  later  executing  a  paper  addressed 
to  the  maker  stating  that  the  $4,800  note  "is  not  your  note,  and 
this  bank  will  not  enforce  collection  of  same  against  you,  and 
when  the  same  is  due  it  will  be  canceled  and  delivered  over  to 
you." 

In  holding  that  the  bank  could  not  recover  on  the  note, 
as  there  was  no  consideration  for  its  execution,  the  Court  of 
Civil  Appeals  of  Texas  says,  Central  Bank  &  Trust  Co.  vs.  Ford, 
152  Southwestern  Reporter,  700,  that,  as  reflected  by  the  record, 
there  was  no  question  but  that  he  acted  as  a  representative  of 
the  bank  and  was  vested  with  full  power  and  authority  to  repre- 
sent the  bank  in  all  matters  pertaining  to  its  business. 

It  might  be  that  the  president  personally  was  the  one  in- 
terested in  having  the  bills  receivable  of  the  bank  to  properly  bal- 
ance, but  that  did  not  alter  the  fact  that  he  acted  as  the  repre- 
sentative of  the  bank  in  the  matter. 

No  element  of  estoppel  in  favor  of  the  bank  could  possibly 
exist  under  the  circumstances  disclosed. 


DEFENSES  TO  NOTE  GIVEN   TO  DECEIVE  EXAMINER 

A  cashier  of  a  bank  fearing  that  the  statute  had  been  violated 
by  making  an  excessive  loan  to  a  coal  company,  induced  the 
president  of  the  bank,  who  was  inexperienced  in  the  banking 
business,  having  been  a  farmer  all  of  his  life,  to  give  his  note 
for  $2,295  to  be  used  temporarily  to  correct  the  matter. 

Assuming,  for  the  sake  of  the  argument,  that  the  note  was 
given  for  the  purpose  of  deceiving  the  state  bank  examiner,  the 
Court  of  Appeals  of  Kentucky  holds,  in  First  State  Bank  vs. 
Morton,  142  Southwestern  Reporter,  694,  that,  in  a  suit  by  the 
bank  on  the  note,  the  president  could  plead  no  consideration, 
there  being  no  unsatisfied  creditors. 


56  BANK  PRESIDENTS 

The  court  also  holds  that  the  bank  ought  not  to  recover 
for  the  alleged  mismanagement  of  such  president,  because  the 
controlling  interest  in  the  stock  of  the  bank  had  been  bought 
for  ten  per  cent  of  its  par  value  by  parties  who  knew  the  con- 
dition, and  undertook  to  pay  the  liabilities,  of  the  bank,  and  to 
allow  the  bank  to  recover  anything  would  amount,  in  substance, 
to  a  recovery  by  them  of  the  purchase  money  which  they  paid 
to  the  president  for  his  stock. 

TRANSACTION    TREATED    AS    AN    OVERDRAFT 

A  bank  president,  to  help  out  another  bank,  undergoing  ex- 
amination by  the  government,  permitted  a  draft  for  $6,000  to  be 
drawn  on  him  personally,  in  favor  of  such  other  bank,  by  a  com- 
pany in  intimate  relations  with  it,  the  company  sending  its  check 
to  him  for  the  amount.  The  check  was  worthless,  but  was  de- 
posited with  his  bank  and  held  for  a  time,  then  forwarded  for 
collection,  and,  when  returned,  was,  by  the  president's  direction, 
kept  in  the  drawer  as  a  cash  item  by  his  bank  until  it  went  into 
the  hands  of  a  receiver. 

In  treating  this  as  part  of  an  overdraft  by  the  president, 
which  he  must  repay,  the  United  States  District  Court,  in  Penn- 
sylvania, holds,  in  Elliott  vs.  Peet,  192  Federal  Reporter,  699, 
that,  if  there  was  delay  in  forwarding  the  check,  the  president 
having  agreed  to  it  or  directed  it,  he  could  not  assert  it  to  be 
negligence  and  lay  it  upon  the  shoulders  of  his  bank. 

If  the  transaction  was  a  mere  scheme  to  deceive  the  gov- 
ernment, and  was  not  intended  to  bind  anybody,  the  president 
was  still  liable  under  the  rule  that,  when  a  man  takes  part  in 
such  a  scheme,  he  shall  make  his  apparent  obligations  good  if 
failure  to  keep  them  would  do  others  harm. 

RIGHT  TO  SALARY  TERMINATED 

Nor  was  the  above  president  entitled  to  recover  for  salary 
after  his  bank  went  out  of  business  and  he  ceased  to  preside, 
due  to  the  superior  power  of  the  law,  for  it  could  not  be  said 
that  his  contract  of  employment  was  broken  by  the  bank. 

OWN  NOTE  FOR  WHICH  BANK's  ACCOUNT  A  SET-OFF 

A  president  of  an  Idaho  bank  having  given  his  note  for 
$5,000  to  a  correspondent  bank  in  Portland,  Ore.,  to  replace  his 
bank's  certificate  of  deposit  for  that  amount  and  to  continue  its 
credit  without  the  use  of  such  a  certificate,  the  United  States 
District  Court  in  Oregon  holds,  in  Kendrick  State  Bank  vs.  First 
National  Bank  of  Portland,  206  Federal  Reporter,  940,  that  the 
Portland  bank  was  legally  authorized  to  charge  off  the  balance 


BANK  PRESIDENTS  87 

standing  to  the  credit  of  the  Idaho  bank  against  the  note,  and 
thus  protect  itself  to  that  extent  against  loss  on  account  of  the 
failure  of  the  Idaho  bank. 

LIABILITY  FOR  FALSE  REPORTS 

The  Supreme  Court  of  Minnesota  says,  in  State  vs.  Sharp, 
141  Northwestern  Reporter,  526,  that  the  statute  of  that  state 
makes  it  a  felony  for  an  officer  of  a  bank  to  withhold  any  in- 
formation called  for  by  the  superintendent  of  banks  for  the 
purpose  of  examination  and  ascertaining  the  true  condition  of 
the  bank. 

If  the  president  of  a  bank  makes  a  false  report  in  response 
to  a  call  made  by  the  superintendent  of  banks  for  information 
upon  specific  facts,  the  offense  is  committed.  It  is  his  business 
to  know  whether  the  reports  he  makes  are  true  or  false.  He 
cannot  be  heard  to  say  that  he  possessed  no  knowledge  of  the 
truth  or  falsity  of  the  reports. 

The  court  cannot  place  so  narrow  a  construction  upon  this 
statute  as  that  the  offense  of  withholding  information  is  not 
committed  unless  the  same  is  wilfully  withheld  and  that  a  person 
cannot  be  guilty  of  withholding  any  information  unless  he  pos- 
sesses such  information. 

The  statute  does  not  make  actual  knowledge  or  criminal  in- 
tent an  essential  ingredient  of  this  offense.  The  gist  of  the 
offense  is  the  withholding  of  information,  and  the  offense  is 
committed  if  a  false  report  is  made  in  response  to  a  call  for  true 
information. 

LIABILITY  ON  INSOLVENCY  OF  BANK 

In  the  settlement  of  the  affairs  of  an  insolvent  bank,  the 
Supreme  Court  of  Appeals  of  West  Virginia  holds,  in  Benedum 
vs.  First  Citizens'  Bank,  7^  Southeastern  Reporter,  656,  that  its 
president  is  properly  chargeable  with  the  amounts  of  worthless 
notes  and  overdrafts  of  corporations,  promoted  and  controlled 
by  him  and  his  associates,  discounted  by  the  bank  with  his  knowl- 
edge, under  his  direction,  and  with  notice  on  his  part  of  the 
financial  ability  of  the  makers,  inferable  from  his  relation  with 
them  and  participation  in  the  management  and  control  thereof. 

USING    LETTER    PREPARED    BY    CASHIER 

Is  it  the  law  that  when  the  president  of  a  bank  signs  a 
letter  prepared,  say,  by  the  cashier,  and  incloses  in  the  letter  a 
bundle  of  instruments  or  documents  furnished  by  the  cashier 
to  be  sent  as  an  inclosure  with  the  letter,  that  the  president 
makes  all  the  recitations  in  these  documents  and  instruments 


58  BANK  PRESIDENTS 

his  own  by  merely  inclosing  them  with  his  letter?  And  this, 
too,  to  fasten  actual  fraud  upon  him?  If  that  view  is  taken 
of  it,  an  agent  of  a  corporation,  the  Supreme  Court  of  Missouri 
says,  assumes  a  liability  and  responsibility  hitherto  unhinted  af 
and  undreamed  of  in  the  philosophy  of  the  law.  The  court 
deems  the  proposition  unsound  on  its  face,  for  the  law  must 
comport  with  reason. 


III.     BANK  DIRECTORS 

Bank  directors  are  the  constituted  managers  of  incorporated 
banks.  They  are  elected  by  the  stockholders.  Their  powers  and 
duties  are  largely  determined  by  the  statutes  under  which  the 
banks  are  organized,  whether  state  or  national.  But  these  are 
interpreted  and  largely  augmented  by  the  decisions  of  the  courts. 


THINGS  INCUMBENT  ON  BANK  DIRECTORS 

As  a  general  rule,  directors,  the  Supreme  Court  of  Oregon 
says,  in  Devlin  vs.  Moore,  130  Pacific  Reporter,  35,  are  charged 
with  the  duty  of  reasonable  supervision  over  the  affairs  of  the 
bank. 

It  is  their  duty  to  use  ordinary  diligence  in  ascertaining  the 
condition  of  its  business,  and  to  exercise  reasonable  control  and 
supervision  over  its  affairs. 

They  are  not  insurers  or  guarantors  of  the  fidelity  and  proper 
conduct  of  the  executive  officers  of  the  bank  and  are  not  re- 
sponsible for  losses  resulting  from  their  wrongful  acts  or  omis- 
sions, provided  they  have  exercised  ordinary  care  in  the  dis- 
charge of  their  own  duties  as  directors. 

Ordinary  care,  in  this  matter,  as  in  other  departments  of  the 
law,  means  that  degree  of  care  which  prudent  and  diligent  men 
would  ordinarily  exercise  under  similar  circumstances. 

The  degree  of  care  required  further  depends  upon  the  sub- 
ject to  which  it  is  to  be  applied,  and  each  case  must  be  deter- 
mined in  view  of  all  circumstances  of  that  particular  case. 

If  nothing  has  come  to  the  knowledge  of  the  directors  to 
awaken  suspicion  that  something  is  going  wrong,  ordinary  at- 
tention to  the  affairs  of  the  institution  is  sufficient. 

On  the  other  hand,  if  the  directors  know,  or  by  the  exercise 
of  ordinary  care  should  have  known,  any  facts  which  would 
awaken  suspicion  and  put  a  prudent  man  on  his  guard,  then  a 
degree  of  care  commensurate  with  the  evil  to  be  avoided  is  re- 
quired, and  a  want  of  that  care  makes  them  responsible. 

Directors  cannot,  in  justice  to  those  who  deal  with  the  bank, 
shut  their  eyes  to  what  is  going  on  around  them. 

Directors  are  not  expected  to  watch  the  routine  of  every 
day's  business,  but  they  ought  to  have  a  general  knowledge  of 
the  manner  in  which  the  bank's  business  is  conducted,  and  upon 
what  securities  its  larger  lines  of  credit  are  given,  and  generally 


60  BANK  DIRECTORS 

to  know  of,  and  give  direction  to,  the  important  and  general 
affairs  of  the  bank. 

They  are  not  required  to  be  bookkeepers. 

It  is  incumbent  upon  bank  directors  in  the  exercise  of  or- 
dinary prudence,  and  as  a  part  of  their  general  supervision,  to 
cause  an  examination  of  the  condition  and  resources  of  the  bank 
to  be  made  with  reasonable  frequency. 

If  a  director  performs  his  duty  as  such  in  the  same  manner 
as  such  duties  are  ordinarily  performed  by  all  other  directors 
of  all  other  banks  of  the  same  city,  it  cannot  be  fairly  said  that 
he  is  guilty  of  gross  negligence. 

To  render  directors  or  other  officers  of  a  corporation  liable 
to  it  for  the  fraudulent,  or  wrongful  acts  of  other  officers,  they 
must  have  participated  therein,  or  else  they  must  be  charge- 
able with  culpable  negligence. 

The  president,  cashier,  and  other  employes  of  the  bank, 
although  selected  by  the  directors,  are  not  the  agents  or  servants 
of  the  directors,  but  of  the  corporation. 


AFTER  DELEGATING  DETAIL  MANAGEMENT 

The  custom  of  intrusting,  first,  to  the  executive  officers  of  a 
bank,  and,  secondly,  to  the  supervision  of  the  executive  committee 
of  the  board  of  directors,  the  detail  management  of  the  corpora- 
tion, such  as  learning  the  responsibility  of  its  debtors,  or  the 
nature  or  value  of  the  collateral,  the  Supreme  Court  of  New 
York,  Appellate  Division,  says,  in  Kavanaugh  vs.  Gould,  131 
New  York  Supplement,  1059,  does  not  relieve  the  directors  gen- 
erally of  all  responsibilty. 

If  the  by-laws  require  monthly  meetings,  they  must  make 
diligent  effort  to  be  present  thereat. 

They  must  give  their  best  efforts  to  advance  the  interest 
of  the  corporation,  both  by  advice  and  by  active  work  on  behalf 
of  the  corporation  when  such  work  may  be  assigned  to  them. 

If  at  their  meetings,  or  otherwise,  information  should  come 
to  them  of  irregularity  in  the  proceedings  of  the  bank,  they  are 
bound  to  take  steps  to  correct  those  irregularities. 

The  law  has  no  place  for  dummy  directors. 

They  are  bound  generally  to  use  every  effort  that  a  prudent 
business  man  would  use  in  supervising  his  own  affairs,  with  the 
right,  however,  ordinarily  to  rely  upon  the  vigilance  of  the  ex- 
ecutive committee  to  ascertain  and  report  any  irregularity  or 
improvident  acts  in  its  management. 

But  the  directors  generally  are  not  chargeable  with  knowl- 
edge of  detail  management  which  need  be  reported  only  to  the 
executive  committee,  and  are  not  liable  for  the  negligence  of  the 


BANK  DIRECTORS  61 

members  of  the  executive  committee,  of  whom  greater  diligence 
is  required,  and  who  are  held  to  a  stricter  rule  of  liability. 


DUTY  AS  TO  CHARGING  OFF  LOSSES 

All  directors  who  participate  in  and  approve  a  long-continued 
carrying  on  the  books,  among  the  loans  and  discounts,  of  a  line 
which  they  know  is  worthless,  and  in  amount  sufficient  materially 
to  affect  the  standing  of  the  bank,  the  United  States  Circuit  Court 
of  Appeals,  Sixth  Circuit,  holds,  in  Chesbrough  vs.  Woodworth, 
195  Federal  Reporter,  875,  are  bound  to  know  that  under  the 
practice  prevailing  in  the  bank  such  worthless  paper  will  become 
an  element  of  the  published  reports,  and  that  these  reports  will 
in  so  far  falsely  represent  to  the  public  the  bank's  condition ;  and 
so,  in  a  fair  sense,  such  directors  permit  the  making  of  a  report 
which  is  a  violation  of  the  national  bank  act.  Hence  it  is  a 
director's  primary  duty,  a  breach  of  which  causes  a  violation  of 
the  statute,  to  charge  off  assets  which  have  become  worthless. 

This  duty  to  charge  off  is,  it  is  true,  that  of  the  board  as  an 
entity;  but,  when  the  duty  is  wholly  unperformed  by  the  board, 
an  individual  director  who  is  engaged  generally  in  the  per- 
formance of  his  functions  may,  nevertheless,  be  individually  liable 
because  of  his  participation  in  the  failure  to  act. 

Nor  is  this  duty  an  absolute  one,  arising  definitely  as  to 
each  piece  of  paper  the  moment  its  collection  becomes  impossible. 

A  failure  to  charge  off  a  thousand  dollar  note  after  the 
directors  know  it  is  uncollectible,  and  in  a  bank  with  a  million 
dollars  of  assets,  could  not  support  an  action  against  a  director 
for  loss  from  the  making  of  a  false  report. 

There  must  be  a  reasonable  margin  of  honest  discretion  as 
to  the  amount  of  paper  which  the  board  may  carry  after  it  has 
become  presently  uncollectible.  This  will  depend  upon  the  state 
of  "undivided  profits"  account,  upon  the  amount  of  assets  which 
have  been  written  off,  but  which  are  thought  to  be  good,  and 
perhaps  upon  many  other  circumstances. 

There  must  also  be  a  reasonable  time  for  consideration  after 
a  debtor  has  become  unable  to  pay,  and  the  directors  know  his 
paper  is,  in  a  strict  sense,  then  worthless.  How  much,  if  any,  of 
this  paper  should  still  be  carried  as  an  asset  and  for  how  long 
will  depend  upon  his  moral  character,  his  prospects  for  recouping 
his  losses,  etc.    Here,  again,  an  honest  discretion  must  be  used. 

Speaking  of  that  duty  to  unknown  persons  among  the  public, 
the  breach  of  which  will  support  an  action,  the  court  cannot  make 
a  more  accurate  formulation  than  to  say  that  the  duty  to  charge 
off  arises  when,  and  so  far  as,  the  directors  know  they  are  carry- 
ing uncollectible  paper  beyond  that  reasonable  amount  and  be- 


^  BANK  DIRECTORS 

jond  that  reasonable  time  permitted  by  an  honest  exercise  of 
their  official  discretion.  In  other  words,  it  arises  when  they 
know  that  longer  carrying  will,  through  the  medium  of  regular 
reports  or  otherwise,  normally  result  in  substantially  misleading 
the  public  as  to  the  net  value  of  the  bank's  assets. 

Whether  particular  paper  is  enforceable  against  the  person 
apparently  primarily  liable  thereon  is  not  controlling  of  the  duty 
to  charge  off.  The  criterion  on  this  part  of  the  whole  question  is 
whether  the  debt  is  collectible  from  any  one,  or  will  be  paid  by 
any  one. 

FORM   AND   PROOF  OF  ACTION    RY  DIRECTORS 

It  is  well  settled,  the  Supreme  Court  of  Arkansas  says,  in 
Merchants'  &  Farmers'  Bank  vs.  Harris  Lumber  Co.,  146  South- 
western Reporter,  508,  that  the  acts  of  a  corporation  which 
must  be  done  or  authorized  to  be  done  by  its  directors  must  be 
done  or  authorized  at  a  meeting  at  which  all  of  the  directors 
are  present  or  have  an  opportunity  to  be  present  by  due  notice 
thereof. 

However,  there  is  no  special  formality  to  be  observed  in  or- 
der to  constitute  a  meeting  of  the  board  of  directors  of  a  cor- 
poration. If  all  the  members  of  the  board  are  present  and  par- 
ticipate in  the  meeting  and  its  proceedings,  that  is  all  that  is 
required  to  make  the  meeting  valid. 

The  fact  that  no  minute  of  the  meeting  is  made  or  recorded 
will  not  render  invalid  any  act  done  or  authorized  at  such  meet- 
ing which  is  within  its  corporate  powers.  Such  authority  may 
be  given  verbally,  and  proved  by  oral  evidence. 

Moreover,  all  the  shareholders  of  a  corporation  may  waive 
the  necessity  for  a  meeting  of  its  board  of  directors,  and  may, 
without  such  meeting,  either  authorize  acts  done  by  its  agents 
within  the  scope  of  the  powers  of  the  corporation,  or  ratify  those 
acts  which  have  been  done,  and  by  such  authorization  or  ratifica- 
tion bind  the  corporation  itself. 

To  the  same  effect,  the  First  Appellate  Division  of  the  Su- 
preme Court  of  New  York  holds,  in  Gardiner  vs.  Bronx  National 
Bank,  142  New  York  Supplement,  713,  that  whatever  is  said  by 
individual  members  of  the  board  of  directors  of  a  bank  in 
desultory  conversations  at  times  and  places  other  than  at  board 
meetings,  is  said  by  such  persons  as  individuals,  and  not  while 
acting  officially,  and  does  not  bind  the  bank. 

FOUNDATION  REQUIRED  FOR  ORAL  PROOF 

If  it  be  sought  to  show  formal  action  by  the  directors,  the 
Supreme  Court  of  Georgia  says,  in  Bank  of  Garfield  vs.  Clark, 


BANK  DIRECTORS  « 

l(i  Southeastern  Reporter,  95,  the  minutes  should  be  produced 
or  accounted  for.  If  a  resolution  was  in  fact  passed,  but  not 
entered  on  the  minutes,  this  should  be  shown.  It  is  not  com- 
petent, without  laying  a  sufficient  foundation  therefor,  to  intro- 
duce oral  evidence  that  the  directors  acted  on  a  certain  trans- 
action, or  that  the  corporation  "agreed"  to  a  certain  thing,  where 
the  issue  is  whether  the  officers  or  agents  who  acted  had  authority 
to  bind  the  corporation  in  the  transaction. 

DISREGARDING  OFFICIAL  WARNINGS 

In  Thomas  vs.  Taylor,  32  Supreme  Court  Reporter,  403,  the 
Supreme  Court  of  the  United  States  affirms  a  judgment  for  dam- 
ages against  directors  of  a  national  bank  for  attesting  a  false 
report  which  deceived  the  plaintiff  and  induced  him  to  purchase 
stock  of  the  bank  on  which  he  was  compelled  to  pay  a  100  per 
cent  assessment.  -         -i 

The  court  says  that  there  is  in  effect  an  intentional  viola- 
tion of  a  statute  when  one  deliberately  refuses  to  examine  that 
which  it  is  his  duty  to  examine. 

The  defendants  had  notice  from  the  comptroller  of  the  cur- 
rency that  $194,000  of  the  items  counted  as  assets  of  the  bank 
were  doubtful  and  should  be  collected  or  charged  off.  This  was 
a  direct  warning  to  them  by  the  bank  examiner  and  comptroller 
that  assets  to  nearly  twice  the  amount  of  the  capital  stock  were 
considered  doubtful.  They,  notwithstanding,  represented  the  as- 
sets to  be  good. 

Such  disregard  of  the  direction  of  the  officers  appointed  by 
the  law  to  examine  the  affairs  of  the  bank  was  a  violation  of  the 
law.  Their  directions  must  be  observed.  Nor  could  the  de- 
fendants be  acquitted  of  having  knowingly  violated  the  statute 
on  a  showing  of  their  relation  to  the  bank  and  the  confidence 
they  had  and  were  justified  in  having  in  the  statements  of  certain 
of  its  officers,  particularly  the  cashier. 

TRANSCENDING  POWERS  AS  TO  PROSECUTIONS 

If  an  agent  or  an  officer  of  a  national  bank,  with  or  without 
the  consent  of  its  board  of  directors,  commits  an  act  which  en- 
tirely transcends  the  scope  of  its  powers  and  objects  of  existence, 
the  individuals  participating  in  the  act  are  solely  responsible  for 
its  consequences,  and  the  national  bank  is  not. 

The  board  of  directors  and  other  officers  are  likewise  im- 
potent to  ratify  any  such  act,  or  to  make  the  bank  take  any  bene- 
fit therefrom. 

For  example,  neither  the  directors  nor  other  officers  or  agents 
of  a  national  bank  have  authority,  the  Court  of  Appeals  of  Georgia 


64  BANK  DIRECTORS 

holds,  in  Hansford  vs.  National  Bank  of  Tifton,  73  Southeastern 
Reporter,  405,  to  institute  prosecutions  for  violations  of  the  public 
criminal  laws  of  the  state,  nor  to  cause  requisition  papers  to  be 
issued  for  alleged  criminals. 

Such  acts  are  entirely  beyond  the  scope  of  the  powers  of  a 
national  bank,  and  liability  does  not  attach  against  the  bank  for 
any  attempt  on  the  part  of  its  directors,  officers,  or  agents  ex- 
ercising any  such  powers  on  its  behalf. 

WITHOUT  SPECIAL  PRIVILEGES  AS  INDIVIDUALS 

Banking  institutions,  the  Court  of  Appeals  of  New  York 
says,  in  People  vs.  Knapp,  99  Northeastern  Reporter,  841,  are 
not  created  for  the  benefit  of  the  directors. 

While  directors  have  great  powers  as  directors,  they  have 
no  special  privileges  as  individuals. 

They  cannot  use  the  assets  of  the  bank  for  their  own  benefit, 
except  as  permitted  by  law. 

Stringent  restrictions  are  placed  about  them  so  that,  when 
acting  both  for  the  bank  and  for  one  of  themselves  at  the  same 
time,  they  must  keep  within  certain  prescribed  lines  regarded  by 
the  legislature  as  essential  to  safety  in  the  banking  business. 

LOANS  TO  director's  FIRM  SAME  AS  TO  HIM 

Hence,  when  the  legislature  commands  that  loans  exceeding 
in  the  aggregate  one-tenth  of  its  capital  stock  shall  not  be  made 
by  any  trust  company  to  any  director,  "directly  or  indirectly," 
it  intends  to  include  such  transactions  as  a  loan  to  a  firm  in 
which  a  director  of  the  bank  is  a  partner.  It  does  not  mean  to 
limit  the  prohibition  to  a  director  borrowing  in  his  own  name 
simply  and  not  as  a  member  of  a  firm. 

NOT  allowed  to  OBTAIN  PRIORITY  OF  LIEN 

A  director  of  a  bank  and  of  a  manufacturing  company  in- 
debted to  the  bank,  the  Supreme  Court  of  Wisconsin  holds,  can- 
not, with  the  aid  of  others,  similarly  placed,  take  property  upon 
which  the  bank  has  security,  turn  it  back  to  the  debtor  company, 
which  they  also  control,  and  then  take  a  mortgage  on  all  the  prop- 
erty of  the  latter  company  and  make  the  several  notes  secured  by 
this  mortgage  due  at  such  times  that  his  note  will  fall  due  first, 
and  so  obtain  priority  of  lien  on  the  returned  property,  even 
though  he  advances  money  in  the  transaction. 

creditor's  suit   must  be  BASED  ON  DECEIT 

Where  a  creditor  of  a  corporation  sues  in  his  own  personal 
right  to  recover  from  a  director  losses  which  he  has  sustained 


BANK  DIRECTORS  65 

by  extending  credit  to  the  corporation,  the  Supreme  Court  of 
Iowa  holds,  in  United  States  FideHty  &  Guaranty  Co.  vs.  Corning 
State  Savings  Bank,  134  Northwestern  Reporter,  857,  that  his 
action  must  be  founded  on  deceit,  and  not  upon  negligence;  it 
must  also  ordinarily  be  brought  at  law,  and  not  in  equity.  And 
where  the  same  person  was  both  an  administrator  of  certain  es- 
tates and  a  banker,  a  legal  fiction  could  not  be  built  up  that  the 
banker  and  the  administrator  were  separate  and  distinct  per- 
sonalities, so  as  to  say  that  the  administrator  was  misled  by  any 
negligent  or  affirmative  act  of  the  directors  af  the  bank. 


WHEN  KNOWLEDGE  NOT  IMPUTABLE  TO  BANK 

There  are  cases  which  hold  that  knowledge  of  the  illegality 
of  a  note  by  a  bank  director,  acting  with  the  board  or  committee 
of  the  bank  at  the  time  of  the  purchase  or  discount  of  the  note 
by  the  bank,  is  imputable  to  the  bank,  while  such  knowledge  by  a 
director  who  is  not  present  and  does  not  act  with  the  board  or 
committee  when  the  note  is  purchased  or  discounted  is  not  im- 
putable to  the  bank. 

If  this  distinction  is  sound  at  all,  the  United  States  Circuit 
Court  of  Appeals,  Third  Circuit,  does  not  think  that  it  has  any 
application  where  the  director  is  transacting  business  with  his 
bank  for  himself,  and  in  its  transaction  fraudulently  conceals  facts 
which,  if  made  known  to  the  bank,  would  defeat  his  purpose. 

And  where  the  president  of  a  bank  and  another  director  of 
it  sold  to  it  a  note  for  $50,000,  but  absented  themselves  from,  and 
took  no  part  in,  the  meeting  of  the  discount  committee,  of  which 
they  were  members,  when  the  purchase  of  the  note  was  being 
considered,  the  court  holds  that  their  knowledge  of  alleged  fraud 
in  the  note  was  not  imputable  to  the  bank,  otherwise  it  would 
be  unsafe  for  any  bank  at  any  time  to  discount  paper  for,  or 
purchase  it  from,  one  of  its  directors. 

The  president  of  a  construction  company,  who  was  also  a 
member  of  the  board  of  directors  of  a  trust  company,  having 
presented  to  the  trust  company  an  application  of  two  stock- 
holders of  the  construction  company  for  a  loan,  the  United  States 
Circuit  Court  of  Appeals,  Eighth  Circuit,  holds,  in  Haskell  vs. 
Columbus  Savings  &  Trust  Co.,  207  Federal  Reporter,  322,  that 
his  knowledge  that  their  note  was  executed  subject  to  a  condi- 
tion that  all  stockholders  of  the  construction  company  should 
advance  their  pro  rata  share  to  the  company  to  enable  it  to  dis- 
charge its  then  pressing  indebtedness  was  not  imputable  to  the 
trust  company,  as  that  would  be  carrying  the  doctrine  of  imputable 
knowledge  and  its  consequences  to  an  unreasonable  and  unwar- 
rantable length. 


66  BANK  DIRECTORS 

MAKING  EXAMINATIONS  OF  CASHIER's  ACCOUNTS 

Where  the  contract  of  a  bank  with  a  company  going  on  the 
cashier's  bond  requires  the  directors  to  make  examinations  of  his 
accounts,  the  Court  of  Appeals  of  Kentucky  holds,  in  United 
States  Fidelity  &  Guaranty  Co.  vs.  Foster  Deposit  Bank's  Re- 
ceiver, 156  Southwestern  Reporter,  371,  that  a  substantial  com- 
pliance with  the  contract,  or  the  exercise  of  ordinary  care  on  the 
part  of  the  directors,  does  not  impose  on  them  the  duty  of  mak- 
ing such  a  thorough,  intelligent,  and  careful  examination  of  the 
accounts  of  the  bank  kept  by  the  cashier  as  a  bank  inspector 
would  make,  or  as  would  probably  be  made  by  a  committee  of 
skilled,  trained  bookkeepers,  but  the  directors  are  obliged  to  ex- 
ercise only  that  degree  of  care  that  ordinarily  prudent  directors 
of  a  bank  similarly  situated  would  exercise  under  like  or  similar 
circumstances. 

Again  the  same  court  holds,  in  Bank  of  Hardinsburg  &  Trust 
Co.  vs.  American  Bonding  Co.,  156  Southwestern  Reporter,  394, 
that  where  officers  and  directors  of  a  bank  obligate  themselves 
to  make  examinations  of  the  cashier's  accounts  and  dealings  with 
the  bank,  at  stated  intervals,  they  must  exercise  ordinary  care  to 
comply  with  this  obligation  on  their  part  by  making  some  char- 
acter of  examination. 

They  must  do  something  that  will  satisfy  the  mind  that  they 
have  made  an  honest  effort  to  ascertain  the  true  condition  of  the 
bank's  affairs  at  such  times. 

The  court  does  not  attempt  to  define  the  character  of  ex- 
amination which  should  be  made,  but  simply  holds  that,  where  the 
directors  are  under  the  duty  or  obligation  to  make  an  examina- 
tion, they  must  do  something  more  than  accept  the  statement  of 
the  cashier  himself  as  to  the  bank's  condition. 


AS  TO   NATIONAL  BANK  DIRECTORS 

The  civil  liability  of  national  bank  directors  in  respect  to  the 
making  and  publishing  of  the  official  reports  of  the  condition  of 
their  banks  is  based  upon  the  duty  enjoined  by  the  national  bank 
act,  and  the  rule  expressed  by  the  statute  is  the  exclusive  rule. 

To  render  a  director  of  a  national  bank  personally  liable 
to  a  depositor  for  fraud  and  deceit  practiced  by  its  officers,  as  at 
common  law,  it  must  be  alleged  and  proved  that  the  director  had 
knowledge  of,  or  approved  of,  or  participated  in,  the  fraudulent 
act  of  which  complaint  is  made. 

So  holds  the  Supreme  Court  of  Nebraska  in  Jones  National 
Bank  vs.  Yates,  139  Northwestern  Reporter,  844,  where  it  says 
that  a  bank  director  is  guaranteed  immunity  from  liability  under 
the  very  law  that  permits  him  to  become  a  director.    As  an  in- 


BANK  DIRECTORS  6J 

ducement  to  him  to  act  in  that  capacity,  the  law  assures  him  that 
he  is  not  to  be  Hable  except  for  that  which  he  knowingly  does. 

A  knowledge  must  be  brought  home  to  the  director  that  he  is 
deceiving  the  individual  wronged,  and  may  thereby  occasion  a  loss 
to  him. 

The  director  is  not  liable  for  his  own  mistakes  or  blunders, 
or  for  the  mistakes  or  blunders  of  his  brother  directors ;  neither 
is  he  liable  for  the  frauds  and  wrongs  of  the  officers  of  the  bank, 
unless  he  has  personal  knowledge  thereof,  or  participates  in  such 
fraudulent  acts.  If  it  were  not  so,  there  would  be  great  difficulty 
in  securing  men  to  assume  the  position  of  national  bank  directors. 

It  may  be  that,  when  one  deposits  money  or  takes  stock  in  a 
bank,  thus  putting  his  property  in  immediate  control  of  other 
persons,  he  has  a  right  to  expect  that  the  directors,  who  are  sup- 
posed to  manage  the  bank,  will  exercise  at  least  ordinary  care 
and  prudence  in  the  management  of  the  bank's  affairs;  but  the 
degree  of  care  required  rests  with  congress,  which  has  control 
of  the  legislation. 


LIABILITY  FOR  FALSE  REPORTS 

The  making  and  publishing  of  the  reports  to  the  comptroller 
required  by  the  national  bank  act,  the  United  States  Circuit  Court 
of  Appeals,  Sixth  Circuit,  says,  in  Chesbrough  vs.  Woodworth, 
195  Federal  Reporter,  875,  are  not  merely  for  the  information 
of  the  comptroller,  but  are  to  guide  so  much  of  the  public  as 
may  have  occasion  to  act  thereon,  and  he  who  buys  from  another 
stock  in  the  bank,  in  reliance  upon  a  false  report  of  its  condi- 
tion, and  suffers  damage  thereby,  has  a  right  of  action  against 
any  officer  or  director  who,  knowing  its  falsity,  authorizes  such 
report.  The  one  suffering  such  damages  is  within  the  statutory 
description  of  "any  other  person." 

The  liability  of  the  directors  upon  such  a  subject-matter  is 
several. 

The  plaintiff  may  arbitrarily  select  one  as  sole  defendant  or 
two  or  more  to  be  joined  as  defendants.  Against  each  individual 
selected,  a  sufficient  case  must  be  made  out  to  show  that  he  par- 
ticipated in  the  act  for  which  a  verdict  is  had ;  but  the  plaintiff's 
reasons  for  the  selection  are  wholly  immaterial. 

Such  action  involves  no  direct  issue  of  negligence. 

The  directors  are  not  exonerated  solely  because  they  acted 
in  good  faith  in  making  loans ;  nor  are  they  liable  merely  because 
they  negligently  made  or  permitted  to  be  made  reckless  or  bad 
loans,  or  negligently  failed  to  collect  loans  that  were  collectible, 
or  because  with  diligence  and  care  they  would  have  known  that 
loans,  reported  as  assets,  were  bad.     The  sole  primary  issue  is 


68  BANK  DIRECTORS 

whether  they  caused  or  permitted  to  be  made  a  statement  of  the 
bank's  condition,  upon  which  statement  the  plaintiff  rehed  to  his 
injury,  and  which  statement  they  knew  was  materially  false. 

LIABILITY  FOR  NEGLIGENCE 

The  relation  of  the  depositors  to  a  bank,  growing  out  of 
their  placing  their  money  with  it  for  safe-keeping,  and  to  be  at 
their  convenience  drawn  out  for  their  use,  is  such,  the  Supreme 
Court  of  Mississippi  says,  in  Ellis  vs.  H.  P.  Gates  Mercantile 
Co.,  60  Southern  Reporter,  649,  that  the  directors,  as  the  officers 
charged  with  the  management  of  the  bank,  are  required  to  be 
diligent  and  careful  in  conducting  the  bank's  business,  and  are 
liable  to  the  depositors  for  losses  sustained  by  the  bank  from 
negligence  in  performing  the  duties  of  their  office.  It  is  the  duty 
of  a  director  to  know  the  condition  of  his  bank  and  to  see  that  its 
affairs  are  honestly  and  properly  managed.  He  cannot  shirk  this 
duty  and  avoid  liability. 

LIABILITY  FOR  RECEIPT  OF  DEPOSITS 

A  director  of  a  bank  who  knows  its  condition  and  who  by 
his  inaction  permits  or  assents  to  the  taking  of  deposits  when  the 
bank  is  in  an  insolvent  condition,  the  Supreme  Court  of  Louisiana 
holds,  in  State  vs.  Buhler,  62  Southern  Reporter,  145,  is  guilty 
of  having  consented  to  the  receipt  by  the  bank  of  deposits,  as, 
in  order  to  be  guilty  of  a  violation  of  the  law,  it  is  not  necessary 
that  such  director  should  have  the  direct  control  of  the  receiving 
teller  and  other  employes  of  the  bank. 

LIABILITY  ON  BANK  ENGAGING  IN  STOCK  SPECULATION 

Stock  Speculation  is  no  part  of  the  business  of  a  national 
bank.  Directors  who  engage  in  or  knowingly  permit  it  are  un- 
faithful to  their  trust  and  are  liable,  the  IJnited  States  Circuit 
Court  in  New  York  says,  for  losses  thus  occasioned.  They  are 
chosen  as  the  guardians  of  the  funds  of  the  bank  to  protect  them 
from  forbidden  and  unlawful  uses,  and  are  not  permitted  to  sub- 
ject them  to  hazardous  and  unauthorized  risks  for  their  own 
benefit  or  for  the  benefit  of  others.  If  they  knowingly  permit 
the  funds  which  it  is  their  duty  to  guard  to  be  plundered,  they 
are  liable  and  must  restore  the  lost  property. 

RIGHT  TO   INVOKE  ASSISTANCE  OF   COURT 

The  directors  of  an  embarrassed  bank,  the  Supreme  Court 
of  Appeals  of  Virginia  holds,  in  Camden  vs.  Virginia  Safe  De- 
posit &  Trust  Corporation,  78  Southeastern  Reporter,  596,  should 
be  allowed  to  file  a  bill  to  secure  the  assistance  of  a  court  of 


BANK  DIRECTORS  69 

equity  to  collect  the  corporation's  assets  and  distribute  them 
equitably  among  those  entitled  to  them.  For  one  thing,  if  the 
assets  of  the  corporation  prove  inadequate  to  satisfy  its  liabilities, 
the  directors  are  liable  to  stockholders  and  creditors  for  any  dam- 
ages which  may  accrue  by  reason  of  any  negligence  on  their  part, 
and  it  would  seem  to  be  nothing  more  than  just  that  they  should 
be  allowed  to  come  into  court  and  defend  themselves  by  antici- 
pation against  any  possible  charge  of  neglect  of  duty  as  directors, 
or,  if  such  neglect  in  fact  exists,  use  all  the  means  at  their  dis- 
posal to  repair  the  consequences  of  their  default  to  themselves 
and  to  others. 


REBUILDING   WITH    FLOORS   TO   LET 

The  Supreme  Court  of  the  United  States  dismissed  an 
appeal  from  a  decision  affirming  a  decree  dismissing  a  bill  to 
restrain  a  national  bank,  its  directors  and  a  contractor  employed 
by  them,  from  pulling  down  the  bank  building  and  erecting  a 
six-story  building  in  its  place,  the  first  floor  to  be  used  for  bank- 
ing purposes  and  the  other  floors  to  be  let  for  offices. 

The  court  says,  case  of  Wingert  vs.  First  National  Bank 
of  Hagerstown,  32  Supreme  Court  Reporter,  391,  that  the 
plaintiff  was  a  holder  of  stock  in  the  bank  and  alleged  that  the 
intended  construction  was  beyond  the  corporate  powers  of  the 
bank  and  commercially  unwise,  but  the  circuit  court  dismissed 
his  bill  on  the  ground  that,  in  the  absence  of  bad  faith,  it 
would  not  revise  the  judgment  of  the  majority  of  the  directors 
on  the  question  of  policy,  and  that  a  national  bank  lawfully 
might  turn  its  building  to  the  best  account  by  adding  upper 
stories  for  offices  to  let.  The  circuit  court  of  appeals  affirmed 
the  decree  on  the  opinion  of  the  circuit  court. 

Pending  the  litigation  the  new  structure  was  built.  It  is 
now  enough  to  say  that  the  whole  case  was  disposed  of  by 
the  erection  of  the  new  building. 

No  doubt,  after  the  filing  of  a  bill  for  an  injunction  the 
defendants  proceeded  at  their  peril,  even  though  no  injunction 
was  issued;  but  there  were  no  damages  for  which  the  plaintiff 
could  make  any  claim  against  the  corporation  for  doing  as  it 
saw  fit  with  its  own,  lawfully  or  unlawfully. 

Furthermore,  a  recovery  would  be  futile.  It  would  cost 
the  plaintiff  as  much  as  it  brought  in. 

To  transmute  the  cause  of  action  into  a  demand  for  dam- 
ages against  the  directors  alone  would  be  an  essential  change, 
and  probably  would  do  the  plaintiff  no  good,  as  it  has  been  held 
in  well-considered  cases  that  that  action  also  will  not  lie. 


70  BANK  DIRECTORS. 

RECEIVER  TO  RECOVER  FOR  DERELICTIONS 

If  a  bank  has  suffered  loss  on  account  of  the  directors  having 
declared  dividends  contrary  to  the  provisions  of  the  statute,  or 
has  suffered  loss  in  consequence  of  the  directors'  fraud,  gross 
negligence,  or  willful  breach  of  duty,  after  such  corporation  is 
placed  in  the  hands  of  a  receiver  it  is  the  duty  of  the  reeciver, 
as  the  representative  of  all  concerned,  the  Supreme  Court  of 
Idaho  holds,  in  McTamany  vs.  Day,  128  Pacific  Reporter,  563,  to 
proceed  and  collect  such  illegal  dividends  and  all  other  claims  of 
such  corporation  due  said  bank  by  contract  or  caused  by  fraud, 
gross  negligence,  or  willful  breach  of  duty  of  the  officers  thereof, 
so  that  whatever  may  be  recovered  may  be  properly  distributed 
among  all  the  creditors  of  the  bank  as  the  law  or  court  may 
direct.  If  the  receiver  fails  or  refuses  to  do  his  duty  in  this 
regard,  that  matter  ought  to  be  called  to  the  attention  of  the 
court,  and  the  court  ought  to  compel  him  to  do  so,  or  remove 
him. 


IV.     MISCELLANEOUS 

There  are  a  few  other  decisions  which  should  be  noted, 
wherein  the  courts  refer  to  bank  "officers"  as  such,  rather  than 
to  specific  officers,  or  where  there  are  not  enough  decisions  to 
treat  them  separately,  as  with  reference  to  vice  presidents. 


NOTICE  TO  OFFICERS  AS  NOTICE  TO  BANK 

The  knowledge  acquired  by  the  president,  directors,  cashier, 
and  tellers  of  a  bank,  while  engaged  in  its  business  in  their  official 
capacities,  the  Supreme  Court  of  Florida  holds,  in  Perry  Naval 
Stores  Co.  vs.  Caswell,  57  Southern  Reporter,  660,  will  be  notice 
to  the  bank.  So  far  as  either  has  authority  to  act  for  the  bank, 
his  acts  are  the  acts  of  the  bank ;  but  mere  private  information, 
obtained  beyond  the  range  of  his  official  functions,  will  not  be 
deemed  notice  to  the  bank. 

In  an  action  by  a  partnership  bank  on  a  note  of  which  it  was 
denied  that  it  was  an  innocent  holder  without  notice  of  the  fraud 
by  which  the  note  was  procured,  the  Supreme  Court  of  Iowa 
holds,  in  Bank  of  Bushnell  vs.  Buck  Bros.,  142  Northwestern 
Reporter,  1004,  that  the  testimony  of  the  president  that  he  had 
no  notice  of  any  defect  in  the  note,  or  defense  against  the  same, 
was  not  conclusive,  but  notice  to  any  of  the  other  officers  of  the 
bank  of  such  infirmity,  if  any,  would  be  notice  to  the  bank. 

The  mere  fact  that  an  officer  of  a  bank  knows  of  a  transac- 
tion which  he  is  under  no  obligation  to  disclose,  and  which  does 
not  relate  to  his  department,  the  United  States  Circuit  Court  of 
Appeals  holds,  in  Sturdee  vs.  Cuba  Eastern  Railroad  Co.,  196 
Federal  Reporter,  211,  does  not  constitute  notice  to  the  bank,  as 
when  an  officer  whose  connection  with  a  bank  does  not  relate 
to  receiving  or  crediting  deposits  himself  deposits  a  check,  for 
himself,  account  of  another  party,  the  bank  will  not  be  bound 
by  his  knowledge  of  an  assignment  of  the  account. 

Nor,  according  to  a  decision  in  Real  Estate  Trust  Co.  vs. 
Company,  191  Federal  Reporter,  566,  is  a  bank  constructively 
visited  with  notice  of  fraudulent  acts  which  its  officer  would  not 
naturally  disclose  to  it. 

Similarly,  the  Supreme  Court  of  Appeals  of  West  Virginia 
holds,  in  American  National  Bank  of  Bluefield  vs.  Ritz,  74  South- 
eastern Reporter,  679,  that  knowledge  by  one  of  the  officials  of 


72  ►  BANK  OFFICERS 

a  bank,  acquired  in  a  capacity  other  than  as  its  representative, 
relating  to  infirmities  in  commercial  paper  offered  for  discount, 
is  not  notice  to  the  bank  when  that  official  is  also  an  officer  of 
the  corporation  seeking  the  discount  and  has  an  interest  in  the 
transaction  so  adverse  to  the  bank  that  the  reasonable  presumption 
is  that  he  would  not  communicate  the  knowledge  to  it. 

Again,  the  same  court  holds,  in  City  Bank  of  Wheeling  vs. 
Bryan,  78  Southeastern  Reporter,  400,  that  knowledge  of  the  in- 
firmity of  commercial  paper,  acquired  by  an  officer  or  director 
of  a  bank  outside  of  his  official  duties,  who  is  personally  interested 
in  having  the  paper  discounted,  is  not  attributable  to  the  bank. 

Where  a  bank  in  good  faith  loans  money  to  a  municipal 
corporation  for  a  legitimate  corporate  purpose,  and  the  money  so 
loaned  is  paid  into  the  municipal  treasury  and  subsequently  ex- 
pended for  the  purpose  stated,  the  Supreme  Court  of  Minnesota 
holds,  in  First  National  Bank  of  Goodhue  vs.  Village  of  Goodhue, 
139  Northwestern  Reporter,  599,  that  recovery  may  be  had  against 
the  municipality  for  a  return  of  the  money,  though  the  contract 
is  void  because  the  president  of  the  municipal  council  is  also  a 
managing  officer  of  the  bank,  and  participates  in  the  council  pro- 
ceedings by  which  the  loan  is  authorized. 

Evidence  of  a  conversation  with  the  officers  of  a  bank  at  the 
time  the  notes  were  executed,  the  Supreme  Court  of  South  Dakota 
holds,  is  not  admissible  to  change  the  obligation  on  the  notes. 


REPRESENTATIONS    MAY   BE   RELIED   ON 

A  savings  bank  holding  an  overdue  note  and  mortgage  which, 
in  accordance  with  its  business  policy,  it  wanted  to  dispose  of 
without  foreclosing,  sold  them  after  a  representation  by  its  presi- 
dent that  the  mortgage  embraced  the  whole  of  a  certain  lot,  while 
the  bank  had  released  a  portion  thereof,  the  president,  when  he 
made  the  statement,  and  the  bank's  attorney,  when  he  made  the 
assignment,  although  well  knowing,  having  "forgot  and  over- 
looked the  fact  of  the  release." 

The  Supreme  Judicial  Court  of  Massachusetts  holds,  in 
Shapira  vs.  Wildey  Savings  Bank,  100  Northeastern  Reporter, 
619,  that  the  purchaser  was  entitled  to  a  rescission  of  the  assign- 
ment of  the  mortgage. 

It  was  true  that  an  examination  of  the  records  subsequent 
to  the  date  of  the  mortgage  which  he  bought  would  have  dis- 
closed the  fact  that  the  bank  had  released  a  portion  of  the  lot, 
but  that  fact  was  peculiarly  within  the  knowledge  of  the  bank, 
and  the  court  cannot  say  that  he  was  culpably  negligent  in  rely- 
ing upon  the  statements  of  its  president,  in  effect  that  the  mort- 
gage was  the  same  as  when  it  was  executed. 


MISCELLANEOUS  73 

UNAUTHORIZED   TRANSACTIONS   BINDING   ON    PARTIES 

Banks,  the  Supreme  Court  of  North  Dakota  says,  in  First 
National  Bank  of  Westhope  vs.  Messner,  141  Northwestern  Re- 
porter, 999,  are  more  and  more  coming  to  be  looked  upon  as 
quasi  public  institutions  and  their  solvency  to  be  regarded  as  a 
matter  of  public  interest.  Actions  which  are  brought  by  them 
to  collect  their  loans  and  to  realize  upon  their  assets  are  for  this 
reason  looked  upon  as  actions  which  are  brought  not  merely  for 
the  benefit  of  the  stockholders,  but  for  the  depositors  also. 

Such  being  the  case,  even  though  the  officers  of  a  national 
bank  may  make  a  contract  beyond  the  authority  of  the  bank, 
and  may  make  a  loan  upon  real  estate  security  which  is  prohibited 
by  the  United  States  statutes,  the  courts  have  held  that  the  sov- 
ereign can  alone  interfere,  and  that  the  debtor  will  not  be  allowed 
to  assert  the  invalidity  of  the  mortgage  or  of  the  transaction. 

These  rulings  and  considerations  must  also  in  logic  apply 
where  an  officer  or  agent  of  the  bank  releases  a  debt  for  less  than 
its  face  value  and  the  bank  seeks  to  hold  him  liable  therefor.  The 
unauthorized  nature  of  the  transaction  can  no  more  be  pleaded  by 
him  than  it  could  be  by  the  original  debtor. 

BANK    OFFICER   ALSO   ONE    OF    CORPORATE    CUSTOMER 

A  treasurer  of  a  trust  company,  who  was  also  an  officer  of 
another  corporation,  made  arrangements  with  the  president  of 
the  latter  corporation  for  the  trust  company  to  have  its  banking 
account.  As  he  acted  only  for  the  trust  company  in  the  matter, 
the  United  States  Circuit  Court  of  Appeals,  Eighth  Circuit, 
holds,  in  Render  vs.  Arkansas  Valley  Trust  Co.,  196  Federal 
Reporter,  1,  that  the  fact  that  he  was  also  an  officer  of  the 
other  corporation  was  immaterial,  and  his  knowledge  of  the 
agreement  that  he  made  that  the  funds  of  the  other  corporation 
should  be  paid  out  only  in  a  certain  way  was  chargeable  to  the 
trust  company.  The  president  of  the  other  corporation  could 
have  simply  told  him  not  to  pay  out  its  moneys  except  upon 
the  presentation  of  a  particular  form  of  check  or  order,  and  the 
instructions  would  have  been  binding. 

MAY  HOLD  STOCK  AS  TRUSTEES 

A  gift,  by  will,  of  the  income  of  certain  shares  of  bank  stock 
of  a  national  bank  to  a  named  church  society  of  a  city,  the  Su- 
preme Court  of  Nebraska  holds,  in  re  Douglass'  Estate,  143  North- 
western Reporter,  299,  is  a  donation  to  a  public  charity,  and  the 
officers  of  the  bank,  where  they  are  designated  for  that  purpose, 
may  hold  the  title  to  the  bank  stock  as  trustees,  and  pay  the  divi- 
dends accruing  to  such  stock  to  the  church  for  religious  purposes. 


74  BANK  OFFICERS 

UNDER    DOCTRINE    OF    PRIVILEGED    COMMUNICATIONS 

There  is  a  certain  privilege  enjoyed  by  business  men  gen- 
erally, in  which  bankers  share,  of  answering  in  good  faith 
inquiries  about  others,  when  made  by  those  entitled  to  the  in- 
formation. Thus,  in  a  case  where  a  promissory  note  given  to 
a  company  had  been  sent  to  a  banker  for  collection,  the  attor- 
ney for  the  company  applied  to  the  banker  for  information  as 
to  the  solvency  of  the  makers  of  the  note  and  was  told  that 
one  of  them  was  insolvent,  that  nothing  could  be  collected  from 
him,  as  the  banker  understood  it;  that  it  was  a  question  with 
the  people  of  the  community  whether  the  man  was  worth  any- 
thing, and  that  the  banks  about  there  were  all  down  on  him. 

The  Appellate  Court  of  Illinois  holds  that  the  statement 
made  by  the  banker  to  the  attorney  was  a  privileged  communi- 
cation, so  that  to  render  the  banker  liable  therefor  it  must 
appear  that  it  was  uttered  in  malice. 

A  communication  made  by  a  country  banker  to  a  mercantile 
house  in  the  city  in  respect  to  the  pecuniary  responsibility  of  a 
customer  of  the  house,  whose  note  has  been  sent  to  the  banker 
for  collection,  is  privileged,  the  court  says,  and,  in  order  to 
maintain  an  action  for  libel  or  slander  against  him,  express 
malice  must  be  shown,  and  cannot  be  inferred  from  the  mere 
falsity  of  his  statement. 

This  last  statement  is  practically  adopted  from  a  decision 
in  a  New  York  case  where  a  banker,  by  way  of  explaining  hi^ 
delay  for  a  week  after  its  maturity  to  remit  the  proceeds  of  a 
note  sent  to  him  for  collection,  appended  to  his  letter,  covering 
the  remittance,  the  words:  "Confidential.  Had  to  hold  over 
for  a  few  days  for  the  accommodation  of  the  makers." 

In  that  case  it  was  held  that  the  relation  existing  between 
the  banker  and  the  owners  of  the  note  rendered  his  communi- 
cation to  them  a  privileged  one,  and  required  proof  of  actual 
malice  to  sustain  an  action  for  libel. 

But  the  highly  confidential  character  of  banking  transac- 
tions generally  does  not  give  to  the  communications  made,  or 
information  acquired  therein,  any  special  legal  sanctity,  like 
that  recognized  in  the  relations  of  attorney  and  client,  physi- 
cian and  patient,  husband  and  wife. 

A  leading  case  on  the  subject  is  an  English  one,  decided  in 
1826.  In  it  a  bank  clerk  was  asked  what  the  balance  of  one  of 
the  parties  was  on  a  given  day.  It  was  ruled  that  it  was  not 
a  confidential  communication ;  that  he  was  bound  to  answer 
the  question ;  or,  as  the  headnote  of  the  case  has  it :  The  banker 
of  one  of  the  parties  in  a  cause  is  bound  to  answer  what  such 


MISCELLANEOUS  75 

party's  balance  was  on  a  given  day,  as  it  is  not  a  privileged  com- 
munication. 

WHO  MAY  MAKE  AFFIDAVITS  FOR  ATTACHMENTS 

Where  a  state  statute  requires  affidavits  upon  which  attach- 
ments are  issued  to  be  made  by  the  plaintiff,  his  agent,  or  attorney, 
it  is  not  enough,  the  Supreme  Court  of  Appeals  of  Virginia  holds, 
that  an  affidavit  is  made  by  a  vice  president  of  a  bank,  signed 
with  his  name  followed  by  the  words  "vice  president,"  or  that 
it  be  made  by  a  director  who  simply  signs  his  name  followed  by 
the  word  "director." 

The  correct  practice  requires  the  affidavit  to  aver  that  the 
maker  thereof  is  the  plaintiff,  his  agent,  or  attorney,  according 
to  the  fact. 

In  the  case  of  a  corporation,  it  can  appoint  as  many  agents 
as  it  pleases,  with  specific  authority  to  make  such  affidavits.  But 
the  court  cannot  say,  as  a  matter  of  law,  in  the  absence  of  aver- 
ment, that  the  term  "vice  president"  or  "director"  necessarily  im- 
ports the  relation  of  agency  between  such  officer  and  his  cor- 
poration, within  the  intendment  of  the  statute. 

ACKNOWLEDGMENT  TAKEN  BY  VICE  PRESIDENT 

The  Supreme  Court  of  Florida  holds  that,  while  a  grantee 
in  a  deed,  or  a  party  interested  therein,  cannot  take  an  acknowl- 
edgment of  the  deed,  in  the  absence  of  any  showing  that  a  vice 
president  of  a  bank  was  required  to  be  a  stockholder,  it  could 
not  be  assumed  that  a  vice  president  was  also  a  stockholder,  and, 
without  such  assumption,  it  could  not  be  said  that  he  was  in- 
terested in  a  mortgage  to  the  bank,  and  that  his  certificate  of 
acknowledgment  thereto  was  for  that  reason  void.  What  the 
decision  would  have  been  if  it  had  been  shown  that  he  was  a 
stockholder,  the  court  refrains  from  intimating. 

VICE  PRESIDENT  CHARACTERIZING  MORTGAGE  BONDS 

The  Court  of  Appeals  of  New  York  holds,  in  Davidge  vs. 
Guardian  Trust  Co.,  96  Northeastern  Reporter,  751,  that  there  is 
no  presumption  of  authority  in  a  vice  president  of  a  trust  com- 
pany simply  made  trustee  of  a  mortgage  and  certifying  the  identity 
of  the  bonds  secured  to  make  any  representation  as  to  whether 
they  are  first-mortgage  bonds  or  not. 

NOT  DUTY  TO  SEE  TO  NOTICES  OF  DISHONOR 

The  fact  that  one  of  the  indorsers  of  notes  given  by  a  com- 
pany to  a  bank  is  a  director  in  and  president  of  the  company, 
and  vice  president  of  the  bank,  and  has  actual  knowledge  the  day 


n  BANK  OFFICERS 

before  the  notes  mature  that  they  will  mature  on  the  next  day, 
and  that  the  company  has  no  funds  with  which  to  pay  them, 
does  not  make  it  his  duty  as  an  officer  of  the  bank  to  see  to  it 
that  notice  of  the  dishonor  of  the  paper  is  given  to  the  parties 
entitled  to  notice  so  that  his  failure  to  do  it  will  prevent  his  deny- 
ing his  liability  on  the  paper. 

So  holds  the  Court  of  Appeals  of  Kentucky,  which  says,  in 
First  National  Bank  of  Louisville  vs.  Bickel,  156  Southwestern 
Reporter,  856,  that  it  does  not  know  of  any  authority  holding 
that  the  vice  president  of  a  bank  is,  by  virtue  of  his  office  alone, 
charged  with  the  duty  of  seeing  that  notice  of  the  dishonor  of 
paper  is  given  to  the  person  entitled  thereto,  or  liable  in  any  man- 
ner if  he  fails  to  do  so,  though,  of  course,  any  officer  or  employe  of 
a  bank  may  be  charged  by  resolution  of  the  bank,  or  by  its 
habit  and  custom  of  dealing,  with  the  duty  of  protesting  paper 
or  giving  notice  of  its  dishonor. 

OFFICERS  ENTITLED  TO  NOTICES  OF  DISHONOR 

Nor  did  the  fact  that  the  indorser  referred  to  was  an  officer 
of  the  bank  relieve  the  bank  from  the  necessity  of  giving  him 
notice.  He  signed  the  paper,  not  as  an  officer  of  the  bank,  but  as 
an  officer  of  another  corporation  borrowing  money  from  the  bank, 
and  his  rights  and  liability  on  the  paper  were  precisely  the  same 
as  those  of  the  other  parties  who  similarly  signed  it. 

The  statute,  requiring  that  notice  of  dishonor  shall  be  given, 
is  peremptory,  and  all  persons  entitled  to  the  notice  are  released 
from  liability  unless  it  is  given,  although  they  may  be  connected 
with  the  bank,  whose  duty  it  is  to  give  notice,  as  officers  or  in 
some  other  capacity,  with  the  exception  that  the  bank  officer  whose 
duty  it  is  to  give  notice  will,  of  course,  not  be  allowed  to  plead 
want  of  notice  as  a  defense  to  a  suit  by  the  bank  against  him. 

GUARANTY  BY  OFFICERS  OF  BANK  OF  OVERDRAFT 

A  guaranty  by  parties  interested  in  a  company  which  states 
that  they  guarantee  an  overdraft  to  a  bank  to  the  extent  of  $4,500, 
all  the  receipts  of  the  company  to  be  deposited  in  said  bank  until 
the  above  is  extinguished,  the  Court  of  Appeals  of  Kentucky 
holds,  in  First  National  Bank  of  Louisville  vs.  Bickel,  156  South- 
western Reporter,  859,  is  to  be  construed  as  a  guaranty  of  the 
payment  of  an  existing  overdraft  only,  the  words  of  the  guar- 
anty excluding  the  construction  of  its  being  intended  to  be  a  con- 
tinuing guaranty.  Furthermore,  the  court  says  that  it  is  unable  to 
perceive  how  the  fact  that  some  of  the  signers  of  such  a  guaranty 
were  officers  of  the  bank  could  have  the  effect  of  preventing  them 
from  denying  that  the  paper  upon  which  it  was  sought  to  hold 


MISCELLANEOUS  11 

them  liable  was  a  continuing  guaranty.  In  signing  the  paper 
they  were  not  acting  as  officers  of  the  bank,  but  were  dealing 
with  it  as  customers,  and  the  relation  they  held  with  the  bank  did 
not  in  any  manner  affect  their  rights  as  signers  of  the  paper. 

PRETENDING  TO  BE  SUBSCRIBERS  FOR  STOCK 

Officers  of  a  national  bank,  according  to  a  United  States 
Court  of  Appeals,  may  not  hold  themselves  out  to  the  comptroller 
of  the  currency,  the  bank  examiners  and  the  business  public  as 
original  subscribers  for  and  holders  of  a  part  of  its  capital  stock, 
which  they  have  never  paid  for,  and  yet  escape  liability  on  obli- 
gations given  for  such  stock  through  a  secret  agreement  amongst 
the  officers  that  the  stock  shall  be  considered  as  belonging  to  the 
bank,  and  not  to  those  to  whom  issued. 

LIABILITIES  OF  OFFICERS  OF  INSOLVENT  BANKS 

An  officer  of  a  bank  who  has  sold  his  stock  and  tendered  his 
resignation,  the  Supreme  Court  of  Appeals  of  West  Virginia 
holds,  in  Benedum  vs.  First  Citizens'  Bank,  78  Southeastern  Re- 
porter, 656,  is  nevertheless  an  officer  in  fact,  if  his  resignation 
has  not  been  accepted,  nor  the  vacancy  in  the  office  filled,  and 
his  acts  and  the  surrounding  circumstances  prove  he  continued 
to  act  for  the  bank  and  to  participate  in  the  management  and 
control  of  its  affairs. 

An  officer  is  liable  for  withdrawal  from  an  insolvent  bank, 
after  knowledge  of  its  insolvency,  of  deposits  made  and  con- 
trolled by  him,  though  he  is  not  sole  owner  thereof. 

Transformation  by  an  officer  of  a  failing  bank  of  its  certifi- 
cates of  deposit  held  by  him  into  a  well  secured  debt  held  by  the 
bank  by  surrender  of  the  certificates  in  part  payment  of  the  debt 
and  taking  a  new  note  from  the  debtor  secured  and  payable  to 
himself  constitutes  a  preference,  the  benefit  of  which  must  be  sur- 
rendered in  the  settlement  of  the  affairs  of  the  bank. 

Officers  of  a  bank  participating  in  misappropriations  and 
transactions  occasioning  losses  are  jointly  and  severally  liable 
for  such  misappropriations  and  losses,  and  there  may  be  a  sep- 
arate decree  against  any  of  them. 

But  an  officer  of  an  insolvent  bank,  held  liable  for  all  of  his 
indebtedness  to  the  bank  and  losses  occasioned  by  his  mis- 
conduct or  neglect  of  duty,  required  to  restore  all  of  his  mis- 
appropriations, and  deprived  of  the  benefit  of  all  preferences  he 
has  obtained,  so  far  as  claims  against  him  on  such  accounts  are 
passed  upon  in  the  decree,  cannot  properly  be  denied  participa- 
tion in  the  distribution  of  the  assets  on  account  of  his  deposits 
and  other  claims  against  the  bank.     In  such  a  case  his  entire 


78  BANK  OFFICERS 

liability  should  be  ascertained  and  decreed  against  him,  and  then 
he  should  be  allowed  to  participate  in  the  distribution,  on  payment 
or  collection  of  a  sufficient  amount  to  insure  ratable  distribution 
among  all  creditors,  including  himself. 

A  creditor  of  an  insolvent  bank,  though  an  officer  and  held 
liable  for  losses,  misappropriations,  and  preferences,  may  set  off 
against  his  deposits  liability  on  his  individual  debts  and  notes  and 
on  his  joint  and  several  notes,  but  not  his  liability  as  surety  or 
indorser,  nor  as  a  joint  debtor. 

officers'  liabilities  as  assets 

The  liability  of  a  bank's  officers  for  gross  neglect  of  duty 
and  willful  mismanagement  of  its  affairs,  and  the  double  liability 
of  stockholders,  the  Supreme  Court  of  Appeals  of  West  Virginia 
holds,  in  Clark  vs.  Bank  of  Union,  78  Southeastern  Reporter,  785, 
are  both  assets  in  the  hands  of  the  trustee  of  an  insolvent  bank, 
to  be  administered  for  the  benefit  of  its  creditors. 

It  is  proper  to  administer  both  of  these  assets  in  a  suit 
brought  by  the  trustee  against  the  bank,  its  stockholders  and 
creditors.  If  the  trustee  does  not  seek  to  enforce  the  officers' 
liability,  the  defendant  stockholders  may  do  so  by  answers  in 
the  nature  of  cross-bills. 

In  such  a  suit,  to  which  all  the  parties  interested  are  parties, 
in  order  that  the  court  may  do  complete  equity,  the  extent  of  the 
officers'  liability  should  be  ascertained  before  assessing  any  por- 
tion of  the  double  liability  upon  the  stockholders. 

LIABILITY   FOR   RECEPTION    OF   DEPOSITS 

The  Supreme  Court  of  South  Dakota  holds,  in  State  vs. 
Stewart,  139  Northwestern  Reporter,  371,  that,  under  the  stat- 
ute of  that  state,  which  makes  it  an  offense  for  any  banker,  bank 
president,  director,  manager,  cashier,  other  officer,  agent,  clerk, 
or  employe  to  receive  or  assent  to  the  reception  of  any  deposit 
after  he  shall  have  had  knowledge  of  the  fact  that  such  banker 
or  bank  is  insolvent,  the  officer  who  accepts  the  deposit  and  the 
officer  who  assents  to  the  act,  with  knowledge  of  the  fact  that 
the  bank  is  insolvent,  are  alike  and  equally  guilty  of  a  single 
offense. 

To  prove  the  crime,  it  is  essential  to  show  that  some  officer, 
agent,  clerk,  or  employe  of  the  bank  received  a  deposit  with 
knowledge  of  insolvency. 

To  prove  another  officer  of  the  same  bank  guilty  of  the 
same  crime,  it  is  only  necessary  to  show  the  same  act  of  the 
officer,  clerk,  or  employe  in  receiving  the  deposit  and  the  assent 
of  the  other  officer  to  the  same  act  with  knowledge  of  insolvency. 


■  MISCELLANEOUS  79 

An  Idaho  statute  provides  that  the  owners  or  officers  of  any 
bank  who  shall  fraudulently  and  with  intent  to  cheat  and  defraud 
any  person,  receive  any  deposit  knowing  that  such  bank  is  in- 
solvent, shall  be  deemed  guilty  of  a  felony. 

The  Supreme  Court  of  Idaho  holds,  in  the  case  of  State  vs. 
Cramer,  119  Pacific  Reporter,  30,  that  it  was  intended  to  make  all 
the  officers  who  have  knowledge  of  the  condition  of  the  bank 
responsible  for  the  acts  of  employes  thereof  in  receiving  deposits. 

So  where,  for  example,  the  vice  president  and  business  man- 
ager of  a  bank,  with  full  knowledge  that  his  banking  institution 
is  insolvent  and  will  not  be  able  to  meet  its  obligations  and  repay 
its  depositors  in  the  ordinary  and  due  course  of  business,  permits 
or  consents  to  such  banking  institution  continuing  to  receive  de- 
posits through  its  regular  employes,  he  is  criminally  liable. 

Where  an  employe  of  a  bank  receives  money  for  deposit 
outside  of  the  bank,  and  it  does  not  reach  the  bank,  it  is  held  in 
Fidelity  &  Deposit  Co.  vs.  Colby,  132  New  York  Supplement,  20, 
that  he  is  the  agent  of  the  person  delivering  to  him  the  money, 
and  not  of  the  bank. 

ENTRIES   AND   REPORTS 

It  IS  not  the  purpose  of  the  law  to  punish  any  officer  of  a 
national  bank,  who,  through  mistake,  makes  an  entry  in  the  books 
of  the  bank  which  he  believes  to  be  true,  although  in  fact  it  may 
be  false.  In  order  to  make  the  act  criminal,  the  United  States 
Circuit  Court  in  Florida  says,  it  must  be  committed  with  intent 
to  deceive  an  agent  of  the  comptroller  of  the  currency.  The  of- 
fense may  be  committed  personally,  or  by  direction. 

An  officer  of  a  bank  in  reporting  the  highest  amount  of  its 
indebtedness  to  any  one,  the  Court  of  Appeals  of  Kentucky 
holds,  may  disregard  a  note  previously  both  discounted  and  by 
the  bank  indorsed  and  rediscounted  to  another,  it  not  being  tech- 
nically an  indebtedness  of  the  bank  although  the  latter  may 
ultimately  have  to  pay  it. 

MUST  PRODUCE  RECORDS 

The  Criminal  Court  of  Appeals  of  Oklahoma  holds,  in  Bur- 
nett vs.  State,  129  Pacific  Reporter,  1110,  that,  under  the  act 
"creating  a  state  banking  board,  establishing  a  depositors'  guar- 
anty fund  to  insure  depositors  against  loss  when  the  bank  be- 
comes insolvent,"  etc.,  all  of  the  books,  records,  and  papers  of 
the  failed  or  insolvent  bank  taken  over  by  the  bank  commissioner 
are  public  records,  and  become  the  property  of  the  state. 

The  privilege  against  self-crimination  afforded  by  the  pro- 
vision of  the  bill  of  rights,  ''that  no  person  shall  be  compelled 


80  BANK  OFFICERS 

to  give  evidence  which  will  tend  to  incriminate  him,  except  as 
in  this  constitution  specifically  provided,"  does  not  protect  the 
officers  of  an  insolvent  state  bank  in  resisting  the  compulsory 
production  of  its  books,  records,  and  papers  because  such  docu- 
ments may  tend  to  incriminate  them. 

BANK  CLERKS  SIGNING  BLANKS  FOR  SUPERIORS 

The  liability  of  a  bank  clerk  sued  for  $19,584  on  account  of 
assessments  on  stock  of  an  insolvent  corporation  which  his  bank 
had  owned  and  had  transferred  to  his  name  turned  on  whether 
or  not  he  knew  that  the  stock  stood  in  his  name.  He  denied 
knowledge  of  the  transfer  to  him,  or  having  ever  received  the 
stock  certificates. 

But  there  were  two  blank  printed  forms  of  proxy  to  vote 
at  annual  meetings  which  had  been  signed  by  him,  and  the  trial 
judge  held  that  the  signing  of  these  proxies  put  him  in  a  position 
where  it  would  be  impossible  for  him  to  put  up  the  plea  of  ig- 
norance, and  directed  a  verdict  against  him. 

That,  however,  the  United  States  Circuit  Court  of  Appeals 
holds,  was  error,  and  the  clerk  was  entitled  to  a  new  trial,  be- 
cause the  question  of  knowledge  was  manifestly  for  the  deter- 
mination of  the  jury. 

The  clerk  suggested  that  he  might  have  signed  the  proxies 
without  knowing  what  he  was  signing,  and  the  court  does  not 
find  anything  inherently  impossible  in  the  proposition  that  bank 
clerks  are  sometimes  so  careless,  negligent,  and  unbusinesslike 
as  to  sign  some  blank,  printed  form,  which  their  superiors  may 
ask  them  to  sign,  without  concerning  themselves  as  to  its  con- 
tents. 


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